SC: Builders can't hide behind insolvency shield

Promoters remain personally answerable despite IBC moratorium, says Supreme Court.

Property pulse

In a significant ruling for homebuyers, the Supreme Court has held that promoters and directors of real estate companies cannot use the moratorium under the Insolvency and Bankruptcy Code (IBC) to shield themselves from personal legal proceedings.

The Court clarified that the moratorium applies only to the company undergoing the corporate insolvency resolution process and does not extend to its promoters, directors or other individuals managing its affairs. As a result, legal proceedings initiated against them in their personal capacity can continue even while the company remains under insolvency protection.

The judgment assumes significance for thousands of homebuyers whose projects have been delayed or left incomplete after developers entered insolvency proceedings. In several cases, promoters had sought to halt proceedings before consumer forums and other courts by citing the IBC moratorium.

The apex court observed that the objective of the moratorium is to preserve the assets of the corporate debtor and facilitate its revival. It is not intended to provide blanket immunity to individuals responsible for the company's actions or to prevent aggrieved homebuyers from pursuing remedies available under law.

Legal experts say the ruling strengthens the rights of homebuyers by ensuring that insolvency proceedings cannot be used to delay or avoid accountability. It is also expected to encourage greater financial discipline among developers and reinforce confidence in the regulatory framework governing the real estate sector.

Buyer Interests

• IBC moratorium protects only the company.
  
• Promoters and directors remain personally accountable.
  
• Consumer cases against individuals can continue.
  
• Relief for buyers in delayed housing projects.
  
• Insolvency cannot be used to avoid personal liability.
  
• Judgment strengthens homebuyer rights