IBC Moratorium Shields Debtor, Not Directors: Criminal & Homebuyer Claims

IBC Moratorium Applies to Corporate Debtor, Not Directors

The National Company Law Appellate Tribunal (NCLAT) has clarified that the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) applies exclusively to the corporate debtor and does not shield directors from criminal prosecution or claims by homebuyers. The ruling arises during the Corporate Insolvency Resolution Process (CIRP), where questions were raised about the scope of immunity granted under the IBC, particularly in light of Section 32A and the Surana Reference.

The tribunal emphasized that while Section 32A protects the corporate debtor from legal proceedings during CIRP, this shield does not extend to directors personally. The bench examined allegations of unfair contract terms imposed on homebuyers and held that such grievances may be pursued independently.

"The moratorium under Section 14 is not a blanket protection for all connected persons,"

the NCLAT stated, reinforcing that personal liability of directors in criminal or civil proceedings remains unaffected.

For practitioners, this decision underscores the importance of distinguishing between entity-level and individual liabilities during insolvency. Directors cannot assume immunity merely due to CIRP initiation. The ruling also affirms homebuyers’ rights to challenge exploitative clauses even during moratorium, enhancing consumer protection within insolvency frameworks.