IBC moratorium does not shield individuals from penalties under consumer law: SC

New Delhi, Mar 4 (PTI) The Supreme Court on Tuesday held that interim moratorium under the Insolvency and Bankruptcy Code does not shield individuals or companies from regulatory penalties imposed under consumer protection laws.

A bench of justices Vikram Nath and Prasanna B Varale passed the important verdict while deciding whether the execution proceedings under Section 27 of the Consumer Protection Act, 1986, can also be stayed during an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC).

Under Section 96 of the IBC, an interim moratorium comes into effect and leads to a temporary suspension of all pending legal proceedings against a corporate debtor.

It also leads to stay on execution of any judgment against the corporate debtor.

It was argued by Saranga Anilkumar Aggarwal that he was facing insolvency proceedings before the National Company Law Tribunal (NCLT) under the IBC and hence there should be a stay on the execution of an NCDRC (National Consumer Disputes Redressal Commission) order.

"The penalties imposed by the NCDRC are regulatory in nature and do not constitute 'debt' under the IBC. The moratorium under Section 96 of the IBC does not extend to regulatory penalties imposed for non-compliance with consumer protection laws," the top court held.

The bench rejected an appeal seeking a stay on penalties imposed by the NCDRC in a case involving delayed possession of residential units.

The case arose from an appeal filed by Aggarwal, proprietor of East and West Builders, against multiple penalty orders (27 in total) imposed by the NCDRC.

The penalties were levied due to the developer's failure to deliver possession of residential units to homebuyers within the agreed timeline.

Respondents Bhavesh Dhirajlal Sheth and others had initially approached the NCDRC, citing delays in possession and deficiencies in service.

In a 2018 judgment, the consumer forum ruled in their favour and directed the developer to complete the construction work, obtain necessary occupancy certificates, and hand over the properties.

However, due to continued non-compliance, the NCDRC imposed regulatory penalties and initiated execution proceedings.

It was argued by Aggarwal, facing insolvency proceedings under Section 95 of the IBC, that the penalties and execution proceedings should be stayed in light of the interim moratorium under Section 96.

The developer cited financial distress and ongoing settlements with other decree holders as reasons for seeking relief from the execution proceedings.

The bench ruled that there existed a fundamental distinction between civil debt-related proceedings and regulatory penalties.

It said the penalties imposed by the NCDRC are regulatory in nature and serve to ensure compliance with consumer protection laws, rather than act as debt recovery mechanisms.

It said the moratorium under Section 96 of the IBC applies only to debts as defined under the Code, whereas regulatory penalties fall outside its ambit. PTI SJK ARI

Source: PTI