Execution Cannot Be Used As Surrogate Forum To Fix New Liability: SC In Plea Against Ansal Crown Directors

In a dispute over delayed flat delivery, the Supreme Court has said execution proceedings cannot be used as a “surrogate forum” to fix personal liability on company directors when the consumer court order was passed only against the developer company.

A bench of Justice Dipankar Datta and Justice Augustine George Masih upheld the National Consumer Disputes Redressal Commission's refusal to proceed against the directors of Ansal Crown Infrabuild Pvt Ltd. The court said the case never went beyond the company and that line could not be crossed later at the enforcement stage.

"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," the court said.

The matter arose from complaints filed by homebuyers over long delays in getting possession of flats in the Ansal Crown Heights project in Faridabad, Haryana. When the complaints were taken up, the consumer commission chose to proceed only against the developer. It declined to issue notice to the directors and promoters and asked the buyers to amend the case accordingly. That order was never challenged.

In 2022, the commission ruled in favour of the buyers and directed the company to complete the project or refund the money with interest. The company did not comply. Insolvency proceedings followed. The buyers then tried to recover the amount from the directors through execution proceedings.

The directors objected, saying they were never parties to the consumer case. There were no allegations against them, no evidence, and no finding of personal liability.

The Supreme Court agreed. It said the consumer proceedings were consciously confined to the company and ended with an order binding only that entity.

“Once the lis stood consciously and finally confined to ACIPL, the adjudication culminated in an order binding exclusively ACIPL and none else,” the bench observed.

The court underlined that enforcement courts cannot go beyond what was decided. “Execution proceedings cannot be utilised as a surrogate forum to impose liability where none has been adjudicated,” it said.

Furthermore, the bench noted that the invocation of the “doctrine of piercing the corporate veil” was “wholly unwarranted, as no allegation of fraud or misuse of the corporate form was either pleaded or established before the adjudicatory forum. 

"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. 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," the bench explained.

The buyers had relied on an earlier Supreme Court order, which held that an insolvency moratorium does not automatically protect directors. The bench clarified that the earlier order only removed the moratorium hurdle.

“The order dated 17th January, 2024, therefore, merely removed the moratorium-related impediment and did not expand the scope of the order or fasten liability upon the directors,” the court said.

Dismissing the appeals, the court said the consumer decree could not be enforced against the directors. It added that the buyers were free to pursue any other remedies available under law against the promoters or directors.