Promoters of real estate companies undergoing insolvency proceedings can no longer use the Insolvency and Bankruptcy Code (IBC) to shield themselves from legal action by homebuyers. On 27 July, the Supreme Court ruled that the moratorium under the IBC protects only the company undergoing insolvency and not its promoters or directors.
Mint explains what the ruling means for homebuyers, promoters and the insolvency process.
What was the case before the Supreme Court?
Homebuyers of the Mantri Manyata Energia project in Bengaluru filed a complaint against the developer, Mantri Technology Constellations Pvt. Ltd., its promoters, directors, associated entities and landowners in the National Consumer Disputes Redressal Commission (NCDRC) in 2023.
The buyers alleged that despite paying substantial amounts, the developer failed to hand over possession by the promised date of 31 December 2018.
While the consumer case was pending, the developer entered bankruptcy proceedings under the IBC. As a result, a Section 14 moratorium came into effect. The NCDRC stayed the entire complaint, prompting the homebuyers to approach the Supreme Court.
A moratorium under Section 14 temporarily pauses lawsuits and recovery proceedings against a company while it undergoes insolvency resolution.
What did the Supreme Court hold?
A bench of Justice Vikram Nath and Justice Sandeep Mehta held that the Section 14 moratorium applies only to the corporate debtor and cannot be extended to promoters, directors, subsidiaries, personal guarantors or other non-corporate parties unless the law specifically provides so.
The court said proceedings against promoters and directors can continue if they arise from their own independent legal liability, even though proceedings against the company must remain stayed during the moratorium.
It also held that the NCDRC erred in staying the entire complaint merely because the developer had entered CIRP. Instead, it should have kept the proceedings against the company on hold while allowing the complaint against the remaining respondents to continue.
What does the ruling mean for homebuyers?
Lawyers said the ruling ensures homebuyers are not left without remedies simply because a developer has entered CIRP. Lawyers said the ruling is likely to bring greater consistency across consumer forums, RERA authorities and other tribunals while ensuring promoters' liability is decided on its own merits.
Homebuyers are one of the largest stakeholder groups under the IBC. According to the Insolvency and Bankruptcy Board of India (IBBI), 43.9% of the 5,785 complaints received by the regulator were filed by homebuyers, making them the largest category of complainants.
"The judgment sends a clear message that homebuyers are not left remediless merely because a developer entity has entered CIRP. While Section 14 of the IBC stays proceedings against the corporate debtor, it does not create a blanket immunity for promoters or directors," said Aradhana Bhansali, senior partner at Rajani Associates.
Bhansali added that the same principle could also apply to criminal proceedings where they are based on a promoter's own acts or omissions.
Vishrut Jain, founder of Vishrut & Associates, said the ruling improves recovery prospects by ensuring that the personal assets and liabilities of promoters remain outside the protection of the CIRP.
"By clarifying that personal assets and individual liabilities remain fully exposed outside the CIRP, the ruling speeds up holistic financial recovery and prevents fraudulent promoters from devaluing personal collateral during corporate insolvency," he said.
What does the judgement mean for promoters?
The judgment increases the accountability of promoters but does not automatically make them liable. Their personal liability must still be established before the appropriate court or tribunal.
Lawyers say this order will have an impact across sectors, where parallel insolvency proceedings are ongoing in a company, along with civil and criminal cases against the promoter.
"Complaints will yield results only where personal culpability of the promoter is established; the insolvency of the developer neither shields nor incriminates them," said Karan Sachdev, advocate at Chambers of Sachdev & Jain.
Sachdev added that creditors are now more likely to implead promoters, guarantors and group companies from the outset. While personal and corporate guarantees remain enforceable despite the company's insolvency, recovery against such persons will still depend on establishing an independent legal obligation.
Jain from Vishrut & Associates said the ruling could also encourage promoters to cooperate in the CIRP or seek settlements instead of relying on the company's insolvency to delay proceedings.
Mukesh Chand, senior counsel at Economic Laws Practice (ELP), said the judgment settles the law on the scope of the IBC moratorium but is likely to give rise to a new set of disputes centred on privity of contract, maintainability of proceedings and the independent personal obligations of promoters and other parties.
Why is real estate insolvency different?
Real estate is one of the most complex sectors under the IBC because insolvency affects not only banks and lenders but also thousands of homebuyers waiting for possession of their homes.
A major challenge is that the IBC does not provide for project-wise insolvency. Developers often have multiple projects with separate finances, approvals and cash flows, but insolvency is generally handled at the company level.
According to the IBBI's April 2026 committee report, 553 real estate CIRPs had been admitted as of 30 September 2025, including 221 ongoing cases involving around 109,000 homebuyers. The committee has recommended introducing a project-wise insolvency framework so that viable projects can be resolved separately, leading to faster project completion and better protection for homebuyers.