Brief Overview:
Unless Directors have signed personal guarantees or a Court has consciously lifted the corporate veil, they cannot be held liable for a decree against the Company.
Technical Details:
Whether execution can be pursued against Directors who were not a party to the original case?
The Indian Supreme Court answered in the negative, stating that
1) Execution must strictly follow the decree. Liability cannot be extended to non-parties or persons not adjudicated as liable
2) Company’s directors or promoters cannot be targeted in execution unless their personal liability is clearly established.
3) Execution against individuals is permissible only where their liability is established through pleadings, evidence, findings, contractual guarantees, or explicit statutory exceptions like Section 14(3) of the Insolvency and Bankruptcy Code, 2016.
4) Moratorium bars execution against the corporate debtor, and it cannot continue indirectly against directors who are not judgment debtors or guarantors.
5) Piercing the corporate veil is exceptional, requires specific pleadings, and cannot be invoked for the first time in execution
JC takeaway:
1) Execution proceedings cannot operate as a substitute for adjudication.
2) Directors are not shielded by the moratorium, but their liability must independently exist in law.
3) Once moratorium is in effect, there is a bar on the execution against the corporate debtor and the directors, or the promoters cannot be proceeded indirectly.
4) The doctrine of piercing of corporate veil is an exceptional remedy and cannot be invoked for the first time at the time of execution.
For further details, please see:
30127_2024_7_1501_67362_Judgement_12-Jan-2026.pdf
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