The Supreme Court held that once a moratorium is imposed on a judgment debtor company, execution measures under Section 71 of the Consumer Protection Act, 2019 stand barred. The appeals challenged NCDRC’s refusal to proceed against the company’s directors and promoters.
NEW DELHI: The Supreme Court has determined that once a moratorium is declared against the judgment debtor company, the execution methods outlined in Section 71 of the Consumer Protection Act, 2019 including the attachment and sale of movable or immovable property, attachment of bank accounts, or withdrawal of decretal amounts from the debtor’s accounts are prohibited.
The appeals presented to the Apex Court contested the National Consumer Disputes Redressal Commission’s decision to dismiss the Execution Applications filed by the appellant against the respondents, who are directors and promoters of M/s. Ansal Crown Infrabuild Pvt. Ltd.
A Division Bench consisting of Justice Dipankar Datta and Justice Augustine George Masih stated,
“Since the judgment and order in CC/86/2018 and CC/2600/2018 had not been passed against the respondents 2 to 9, at the stage of execution, the order passed against ACIPL could not be enforced against them. It is settled law that execution must strictly conform to the decree.”
The court explained,
“Once a moratorium has been declared against the judgment debtor company, i.e., ACIPL, the modes of execution contemplated under Section 71 of the Consumer Protection Act, 2019, including attachment and sale of movable or immovable property, attachment of bank accounts, or withdrawal of decretal amounts from the accounts of the judgment debtor, stand interdicted. 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.”
FACTUAL BACKGROUND OF THE CASE
The appellant is an association of flat buyers who entered into Flat Buyer Agreements with ACIPL for units in Ansal Crown Heights. Under the individual builder-buyer agreements, ACIPL committed to delivering possession of the apartments within 36 months from the date of execution, a period that ended for all buyers between December 2013 and December 2015. Since possession of the flats was not delivered, the appellant filed two consumer complaints: one on behalf of 45 flat buyers and another on behalf of 20 flat buyers, naming ACIPL and its directors or promoters as respondents.
Upon admitting the case, the NCDRC ordered that proceedings would continue solely against ACIPL and not against the other respondents. The appellant was thus directed to submit an amended memo of parties, listing ACIPL as the sole respondent. Following this directive, ACIPL was identified as the only respondent, and the NCDRC instructed ACIPL to complete the project and hand over possession of the flats to the buyers. Alternatively, if the allottees were unwilling to wait, ACIPL was ordered to refund the entire amount paid.
As ACIPL failed to comply with this order, the appellant initiated execution proceedings. Subsequently, however, a corporate insolvency resolution process was initiated against ACIPL under the Insolvency and Bankruptcy Code, 2016, resulting in a moratorium being enforced.
The NCDRC subsequently adjourned the case sine die. The appellant challenged this sine die adjournment through Civil Appeals, which were granted. The Court ruled that execution proceedings could continue against the respondents, stating that the moratorium under Section 14 of the IBC protects only the corporate debtor and does not extend to the directors/promoters.
Upon revival, the appellant pursued the execution applications against the respondents, which the NCDRC dismissed, asserting that the order was only executable against ACIPL, the sole respondent in the original complaints.
ISSUE INVOLVED: Can persons who were arrayed as respondents in the consumer complaints but ultimately against whom no notice was issued and the complaints did not proceed, could be brought within the net of execution, on the premise that they were directors/promoters of the judgment-debtor company?
ANALYSIS OF THE COURT
The Bench concluded that, since the dispute was consciously limited to ACIPL, the outcome bound only ACIPL and not any other parties. It noted that there was no determination of liability against the other respondents.
- Execution Cannot Travel Beyond the Decree: The Court reaffirmed the well-settled principle that an executing forum cannot go behind or beyond the decree. Execution proceedings are meant to enforce an adjudicated right, not to create new liabilities. Since the final consumer orders were passed only against ACIPL, and not against its directors, execution could not be expanded to include them.
The court relied on the decision in the case of Rajbir v. Suraj Bhan where this Court held that:
“It is well settled that the executing court cannot go beyond the decree. The decree must be executed as it is. Though, it is indeed open to the executing court to construe the decree; it cannot go beyond the decree”
2. Corporate Personality and Director Liability : Reiterating classic corporate law principles, the Court held that a company is a distinct legal entity separate from its shareholders and directors. Directors cannot be made liable merely because the company has defaulted, unless: They have furnished personal guarantees, Statutory provisions impose liability, or Fraud or misuse of corporate form is established.
The Court relied on Electronics Corpn. of India Ltd. v. Secy., Revenue Deptt., Govt. of A.P underscored that a clear distinction must be maintained between a company and its shareholders by observing as
follows:
“A clear distinction must be drawn between a company and its shareholder, even though that shareholder may be only one and that the Central or a State Government. In the eye of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or entities that hold its shares.”
3. Absence of Pleadings, Evidence, or Findings : The Court emphasised that liability cannot be imposed without pleadings, opportunity of hearing, evidence, and recorded findings. In the present case, No findings were recorded fixing individual responsibility. No pleadings alleged personal misconduct or liability of the directors, No evidence was led against them,
It stated,
“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.”
4. Where the judgment debtor is a company, the liability of its shareholders or joint venture partners remains confined to the extent of their shareholding or to such guarantees or undertakings as may have been expressly furnished by them.
It explained,
“It is trite that a decree cannot, by process of execution, be employed to shift or enlarge liability so as to bind persons who were neither parties to the decree nor otherwise legally liable thereunder.”
5. Piercing the Corporate Veil Not Permissible in Execution : The Court categorically rejected the invocation of the doctrine of lifting the corporate veil at the execution stage. It held that piercing the veil is an exceptional remedy that requires: A reasoned judicial determination. Specific pleadings of fraud or abuse, Evidence establishing misuse of corporate personality,
The Bench concurred with the NCDRC’s approach, asserting that the CP Act mandates a complete adjudicatory process based on service of notice, pleadings, and the opportunity to contest, along with evidence and recorded findings.
It added,
“These are not mere procedural formalities but substantive safeguards that precede the fastening of liability. In the present case, no such adjudicatory exercise was undertaken qua the respondents 2 to 9,”
Additionally, the Bench stated that lifting the corporate veil is an exceptional measure that requires a clear finding that corporate identity was misused for fraudulent or dishonest purposes.
The order reads,
“Such a finding must be preceded by specific pleadings and a determination on merits. No such allegation of fraud or misuse of the corporate form was either pleaded or established before the adjudicatory forum. In the absence of a prior and reasoned determination justifying disregard of the corporate personality, the directors/promoters cannot be exposed to personal liability through execution,”
FINAL DECISION OF THE COURT
The Bench found that the NCDRC’s impugned order, which considered executability against respondents 2 to 9 based on its merits and declined to proceed due to lack of legal or factual basis for personal liability, was not inconsistent with the Court’s ruling.
It concluded that the NCDRC did not commit any errors in law or jurisdiction by refusing to execute the order against individuals who were not parties to the complaints.
The Bench ruled while dismissing the appeal,
“The order binds only ACIPL. The appellant did not challenge the order dated 25th January, 2018, of the NCDRC, which declined to issue notice to respondents 2 to 9 and directed the filing of an amended memo of party with ACIPL as the sole respondent, and cannot now enlarge the order through execution,”
The Supreme Court’s ruling thoughtfully balances the interests of homebuyers with core principles of corporate law. While acknowledging consumer hardship, the Court emphasised that fairness cannot override due process, legal certainty, or adjudication, and that liability must be determined before enforcement through execution.
Cause Title: Ansal Crown Heights Flat Buyers Association (Regd.) v. M/S Ansal Crown Infrabuild Pvt. Ltd. & Ors. (Neutral Citation: 2026 INSC 51)
Read Attachment: