Moratorium Under IBC Does Not Immunize Directors – But Execution Still Needs Adjudicated Liability: Supreme Court

“Moratorium Shields Only Corporate Debtor, Not Its Directors — But Liability Must Be Independently Established First”, In a significant clarification on the scope of Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), the Supreme Court of India on January 12, 2026, ruled that while directors and promoters of a corporate debtor are not protected by the IBC moratorium, execution of a consumer decree against them is not permissible unless their individual liability has been established through proper adjudication.

Supreme Court dismissed appeals by a flat buyers’ association seeking to execute a consumer protection order not only against the defaulting builder-company M/s Ansal Crown Infrabuild Pvt. Ltd. (ACIPL) but also against its directors and promoters.

The bench comprising Justice Dipankar Datta and Justice Augustine George Masih made it clear that Section 14 of the IBC, which triggers a moratorium on legal proceedings against the corporate debtor once insolvency proceedings are initiated, does not extend that protection to its directors and officers. However, the Court categorically held that lifting the IBC bar alone does not create a ground for proceeding against directors unless liability is adjudicated in accordance with law.

“Lifting the IBC Bar Does Not Create Personal Liability Where None Was Adjudicated”

The flat buyers association had sought to overcome the moratorium imposed on ACIPL by trying to execute the consumer decree against its directors and promoters. While the Supreme Court had earlier allowed execution proceedings to continue against them — holding that “the protection of the moratorium will not be available to the directors/officers of the company” — it had expressly directed that their liability must still be determined by the adjudicatory forum (NCDRC).

Now, ruling on that very issue, the Court has affirmed the NCDRC’s refusal to proceed against the directors. It held:

“The moratorium … does not preclude execution proceedings against directors or officers, provided they are otherwise liable. … The order dated 17th January, 2024 … merely removed the moratorium-related impediment and did not expand the scope of the order or fasten liability upon the directors.”

In other words, the end of the IBC shield does not imply the beginning of liability. The Court emphasized that execution proceedings cannot be used as a substitute for adjudication, and directors/promoters who were not part of the original adjudication cannot be made liable merely because the corporate debtor is under a moratorium.

Supreme Court: Consumer Fora Cannot Expand Decree Through Execution Post IBC Moratorium

The Court scrutinized the nature of the original consumer complaints filed by the flat buyers association. It noted that the NCDRC had consciously decided not to proceed against the directors/promoters at the time of admitting the complaints. The complaints were pursued only against ACIPL, and no findings or directions were issued against any other party.

“In the absence of pleadings, adjudication, or findings against them, the essential foundation for fastening liability upon the respondents 2 to 9 is plainly lacking.”

The Court also cautioned that execution proceedings cannot be used to bypass the moratorium by redirecting enforcement against non-adjudicated individuals:

“Execution proceedings cannot, therefore, be permitted to continue indirectly against the respondents 2 to 9, who are neither judgment debtors nor guarantors, and against whom no independent liability under the order allowing the complaints has been established.”

This observation reaffirms that directors of a company undergoing insolvency cannot be roped into liability unless their responsibility was either adjudicated in the consumer proceedings or independently established under other statutes like the Companies Act or IBC itself.

IBC’s Section 14: Corporate Shield, Not a Cloak for Personal Assets — But Directors Not Automatically Liable

While rejecting the execution against directors, the Court left open the possibility for the decree-holder to pursue other remedies in appropriate forums:

“This dismissal will not preclude the appellant from pursuing any remedy available in law against the promoters/directors, including proceedings under the Companies Act, IBC, or civil law, should the statutory requirements therefor be satisfied.”

Thus, the Court maintained a delicate balance between preserving the sanctity of insolvency proceedings and preventing abuse of execution mechanisms to unjustly fasten personal liability in the absence of due process.

Importantly, the Court rejected any invocation of the “piercing of corporate veil” doctrine at the stage of execution, noting:

“The lifting of the corporate veil is an exceptional measure … to be resorted to only upon a clear finding that the corporate personality was abused for fraudulent or dishonest purposes. … No such allegation of fraud or misuse of the corporate form was either pleaded or established.”

IBC Does Not Bar Execution Against Directors — But It Does Not Create Liability Either

This ruling draws a clear procedural and jurisdictional line: while the IBC’s moratorium under Section 14 does not shield directors/promoters, liability against them must be separately adjudicated and not presumed or imposed via execution.

The decision reaffirms both the importance of corporate separateness and the limited reach of execution proceedings, especially in cases where a company undergoing insolvency is the primary judgment-debtor.

Date of Decision: January 12, 2026