When CIRP Does Not Put Every Project Dispute on Hold

By Nitin Jain

There’s a common misconception in company restructuring. It is that an insolvency moratorium protects everyone associated with a distressed company. In reality, the statutory protection applies to the corporate entity undergoing insolvency. Connected individuals and business partners may remain exposed to separate proceedings and personal liability.

Promoters, directors, personal guarantors, project entities and landowners may all face separate exposure when a real estate developer or project company enters the Corporate Insolvency Resolution Process (CIRP). Homebuyers and consumers may name both the company and its directors, promoters or land partners in the same claim. The Supreme Court’s ruling in the Mantri Manyata Energia Project case, reinforces that Section 14 of the Insolvency and Bankruptcy Code (IBC) protects the corporate debtor and its assets, rather than every party connected with it. It does not extend the same protection to non-debtor individuals, so proceedings against them may continue on their merits.

When a real estate developer enters CIRP, the IBC moratorium prevents proceedings against the corporate debtor during the protected period. A pending National Consumer Disputes Redressal Commission (NCDRC) proceeding against the company’s directors and land-owning partners may nevertheless continue, leaving those respondents to defend the allegations and any personal liability established against them.

This blog examines the scope of Section 14 moratoriums and the separate exposure of promoters, directors and project partners during corporate insolvency.

What the Moratorium Actually Stops

Section 14 protects the company undergoing CIRP, referred to under the IBC as the corporate debtor. A proceeding directed against that company may therefore be stayed by the moratorium. A proceeding against another respondent must be considered separately.

The Supreme Court’s decision in Tejas J. Shah & Amisha T. Shah & Ors. v. Mantri Technology Constellations Pvt. Ltd. & Ors. illustrates this distinction.The company remained protected by the moratorium, while the consumer complaint could continue against the other respondents. The decision did not determine that those respondents were liable. Their obligations still had to be determined separately.

The distinction works both ways. The company’s insolvency does not automatically stop a proceeding against another person, while continuation of that proceeding does not itself establish personal liability.

Connection With the Project Is Not Enough

Real-estate projects often involve several parties. The developer may contract with homebuyers, a landowner may enter a separate development agreement, and another project company may receive or manage payments. Promoters and directors may sign documents on behalf of the company or make representations in their own capacity.

Their legal positions are not interchangeable. A director acting only as the company’s authorised representative occupies a different position from someone who gave an independent assurance. A landowner named in the complaint may have separate obligations, limited obligations or no relevant obligation, depending on the agreements and conduct relied upon.

Being described as a promoter, director or landowner does not by itself establish personal liability. The consumer forum must examine whether that person made a promise, received money, assumed responsibility or became bound by a separate legal relationship.

One Project Can Produce Separate Proceedings

The company’s insolvency process deals with claims against the company and its assets. A consumer complaint against another respondent concerns whether that respondent has an obligation that can be determined independently.Both proceedings may concern the same delayed project without involving the same legal liability.

A homebuyer may submit a claim against the developer in CIRP while continuing a consumer complaint against other named respondents. TThe outcome in one forum does not necessarily determine the outcome in the other. Statements, admissions and settlement proposals made in one proceeding may nevertheless become relevant in the other.

A personal guarantee creates a separate line of exposure. It is a separate promise by an individual to answer for the company’s obligation. The guarantee, its terms and any waiver or release therefore require separate examination.

The Documents Show Whose Obligation It Was

The first document to examine is the complaint itself: who has been named, what relief is sought and what conduct is alleged against each respondent. The review then turns to the records connecting that respondent with the project.

Allotment agreements may show which party promised delivery or repayment. Land-development agreements may define the landowner’s role. Correspondence and representations may show whether an assurance was given by the company or another party. Payment records identify who received the money, while board resolutions and signature blocks can show whether an individual acted personally or on behalf of the company.

Guarantees require the same level of review. The documents may therefore support different defences for parties named in the same complaint. Association with the borrower does not replace proof of the undertaking.

The record may therefore support different defences for parties named in the same complaint. One respondent may rely on the moratorium where the claim is directed against the company. Another may deny having assumed any independent obligation. A third may need to defend an obligation recorded in its own documents.

Delay Can Change the Litigation Position

Non-company respondents can lose procedural and commercial options if they assume the company’s moratorium protects them. Deadlines continue to run in proceedings that remain active. Failing to respond can limit the opportunity to contest allegations, seek appropriate relief or negotiate before the dispute advances.

Parallel proceedings can also affect settlement negotiations. Continuing consumer claims may influence homebuyer negotiations, project-completion discussions and the liquidity available to promoters or guarantors. Treating every claim as part of the same insolvency process can also lead to inconsistent positions across forums.

The first step should therefore be to separate the company’s CIRP from every proceeding in which another person has been named. Each file should identify the respondent, the alleged obligation, the available defence and the documents supporting it, while keeping the underlying factual chronology consistent.

CIRP is a process for the company, not a blanket defence for everyone connected with the company or its project. The decisive question remains: who is being sued, and what independent obligation is alleged against that person?