Supreme Court: No Execution Against Company Directors Without Prior Cognizance And Pleadings At The Complaint Stage

On January 12, 2026, the Supreme Court of India ("Supreme Court"), in the case of Ansal Crown Heights Flat Buyers Association (Regd.) v. Messrs Ansal Crown Infrabuild Private Limited, Civil Appeal No. 8465-8466 OF 2024, has held that execution proceedings cannot be initiated against the directors of a company, when cognizance against such directors was not taken at the complaint stage under the consumer law and no pleadings thereto were also raised in the complaint.

Background

1. The Appellant, an association of buyers, entered into flat buyer agreements with the Respondent No. 1 for units in Ansal Crown Height
2. In terms of the respective agreements, the Respondent No. 1 was required to handover the possession of the apartments within 36 (thirty-six) months from the date of execution of the agreements, which lapsed for all buyers between December, 2013 to December, 2015
3. The possession of the flats was not delivered by the Respondent No. 1 to its allottees, which led to the filing of 2 (two) Consumer Complaints before the National Consumer Disputes Redressal Commission ("NCDRC").
4. The Respondent Nos. 2 to 9, in the said Complaints, were the directors/ promoters of the Respondent No.
5. The NCDRC, whilst, admitting CC/86/2018, vide Order dated January 25, 2018 directed that the proceedings would only continue against the company, i.e., the Respondent No. 1 and not against the directors/ promoters of the Respondent No. 1, i.e., the Respondent Nos. 2 to 9 and accordingly, directed the Appellant to file the amended memo of parties.
6. The Order dated January 25, 2018 was not challenged by the Appellant and thus, had attained finality.
7. On February 28, 2022, the Complaints were allowed by the NCDRC and inter-alia, directed the Respondent No. 1, to complete the project, obtain the occupancy certificate and handover the possession of the flats to its allottees, with interest @ 9% (nine percent) p.a. on the amounts deposited by them from the committed date of possession until offer of possession or alternatively, allottees who were not willing to wait for possession, the Respondent No. 1 was directed to refund the entire amount with interest @ 9% p.a., which amount was to be paid within six weeks, failing which, interest @12% (twelve percent) p.a. would apply for the default period.
8. The Respondent No. 1 failed to comply with the Order dated February 28, 2022 and consequently, Execution Petition was filed against the Respondents.
9. In the interim, corporate insolvency resolution process was initiated against the Respondent No. 1.
10. The NCDRC, vide Order dated May 18, 2023, adjourned the proceedings sine dine, including against the directors of the Respondent No. 1, which Order was challenged before the Supreme Court.
11. The Supreme Court set aside the Order dated May 18, 2023 and clarified that proceedings may continue against the Respondent Nos. 2 to 9, as moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 would not extend to directors/ promoters, however, granted them the liberty to raise all objections before the NCDRC.
12. Pursuant to the above, the Appellant impressed upon the NCDRC to execute the decree against the Respondent Nos. 2 to 9, which came to be dismissed vide the Order dated June 20, 2024, on the ground that the order was executable only against the Respondent No. 1, who was the sole opposite party in the original complaint.

Issue

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 clutches of execution only on account of the fact that they were directors/ promoters of the company?

Observation

The Supreme Court recorded that notice was issued by the NCDRC, at the complaint stage, only against the Respondent No. 1 and not against the directors/ promoters and a specific direction was issued to the Appellant to file the amended memo of parties, which order was never assailed and thus, attained finality.

It was also observed that proceedings in the Complaints continued with no pleadings against the Respondent No. 2 to 9, i.e., the directors/ promoters and resultantly, no findings were also recorded against them. Due to the same, the lis was confined to the Respondent No. 1, with no essential foundation for fastening liability upon the Respondent Nos. 2 to 9. Thus, there was no adjudicatory exercise undertaken against the Respondent Nos. 2 to 9.

It reiterated that the execution must strictly conform to the decree and the executing courts cannot go beyond the decree.

The doctrine of piercing of corporate veil cannot be attracted, as it is used as an exceptional measure to be resorted to only upon a finding that the corporate entity was abused for fraudulent purposes, which can only be established by way of pleadings and adjudication on merits. In the present case, the doctrine was inapplicable.

Decision

The Supreme Court, after recording the observations, held that the execution proceedings cannot be continued against the Respondent Nos. 2 to 9, who were neither judgement debtors nor guarantors. No independent liability was established under the Order allowing the Complaint. It was also held that a person, cannot by way of execution proceedings, be made liable for proceedings, when such person was not a party to the decree and merely, by being a director/ promoter of such company, liability cannot be fastened upon in the execution proceedings.

In the absence of foundational elements of attracting liability, execution proceedings cannot be used as a surrogate forum to impose liability, where none has been adjudicated.

In light thereof, the Supreme Court held that execution proceedings are not maintainable against the Respondent Nos. 2 to 9 and the NCDRC had not committed any error of law or jurisdiction in declining to execute the order, as the order allowing the complaint, only binds the Respondent No. 1 and thus, the execution proceedings cannot be enlarged. As a result, the Appeal was dismissed.

Analysis

By virtue of this judgement, the Supreme Court has removed the ambiguity specifically for matters, where directors were impleaded at the execution stage, without having any role in the complaint, after the complainants became aware that the company is facing corporate insolvency resolution proceedings or in cases, where the company is facing severe cashflow. This methodology was adopted to pressurize the directors/ promoters to cough up the decretal amount, with no legal basis.

The liability cannot be fastened upon directors/ promoters only on account of the fact that they were directors of the company, without any role ascribed to them, without any pleading qua them and more importantly, without cognizance being taken against them, at the complaint stage.

This judgement also iterates that cognizance can only be taken against directors/ promoters, who have any role in the dispute between the parties and merely, such people having an association with a company, would not automatically, make them liable for the acts, committed by the company. This judgement has now cleared the air and comes as a sigh of relief for the directors/ promoters who were arrayed as judgement debtors, without being a party in the consumer complaint.

Please find attached a copy of the judgement, here.

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