Bankruptcy Code will not act as a shield to promoters and directors!

Clarified Supreme Court

The Supreme Court has given a key judgement in the Insolvency and Bankruptcy Code, giving relief to many home buyers. The Bankruptcy Code is not much of a shield for promoters and directors. It has been decided that action can be taken against the promoters and directors of the bankrupt company. To this extent, the verdict was issued while solving the request of the buyers of houses belonging to Ansal Crown Heights, Faridabad.

It said that the National Consumer Disputes Redressal Commission was wrong to dismiss the petition of the buyers against the company officials for refund. A bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan held that the company’s directors and officers cannot claim protection due to the temporary injunction under Section 14 of the IBC.

IBC clarified that as there is a moratorium under Section 14 on the company, it does not protect the promoters and directors of the respective company. Provisional injunction under Section 14 of the IBC means prohibition of insolvent institutions, enforcement of judgements, transfer of assets, and recovery of assets in possession. In this context, the National Consumer Disputes Redressal Commission has given its first verdict against Ansal Crown Heights. The company was directed to re-construct the plots within a specified time or refund the buyers’ money. With this, the company went to IBC proceedings. In this context, the buyers approached the commission again, but IBC rejected their request due to the proceedings. As this case came to the Supreme Court, the Supreme Court upheld the Commission’s first verdict in favour of the buyers.