9911796707
TMI Blog2025 (3) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... t no. 3 - East & West Builders (RNA Corp. Group Co.), in an execution application filed by respondent nos. 1 and 2 before the NCDRC, challenging the execution of multiple penalty orders imposed by the NCDRC during the pendency of insolvency proceedings against the Corporation. The appellant contends that the imposition and execution of these penalties should be stayed due to the pendency of insolvency proceedings initiated under Section 95 of the IBC. 3. The appellant is engaged in real estate development and has several pending consumer complaints before the NCDRC filed by homebuyers alleging delay in possession, deficiency in service, and breach of contractual obligations. The NCDRC, in its final judgment dated 10.08.2018 in CC/1362/2017 along with other connected matters, allowed the complaints and directed the appellant to complete construction, obtain the requisite occupancy certificate, and hand over possession and imposed 27 penalties on the appellant for deficiency in service by failing to deliver possession within a reasonable time. The respondent no.1 and 2, as decree holders, subsequently filed execution applications seeking execution of the abovementioned order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 14 applicable to corporate debtors. The NCDRC emphasized that the stay under Sections 96 and 101 extends only to proceedings concerning the debt and does not necessarily shield the guarantor from all legal actions. 7. Additionally, the NCDRC placed significant reliance on this Court's ruling in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) 10 SCC 545. In that case, this Court reaffirmed that criminal proceedings against directors or signatories of a company do not abate merely because the corporate debtor is undergoing insolvency resolution. This Court, referring to Manish Kumar v. Union of India and Another (2021) 5 SCC 1, held that individuals associated with the corporate debtor remain liable for their acts, and the company's dissolution does not absolve them of personal liability under statutes like the Negotiable Instruments Act, 1881 NI Act. 8. Furthermore, the NCDRC rejected the applicant's reliance on the Bombay High Court's decision in Sheetal Gupta vs. National Spot Exchange Limited and Ors. 2023 SCC OnLine Bom 3095, wherein the Bombay High Court had directed stay of criminal proceedings under Section 138 of the NI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rim moratorium period, "any legal action or proceedings, pending in respect of any debt, shall be deemed to have been stayed." 14. The appellant further submitted that the proceedings under Section 27 of the CP Act are effectively recovery proceedings. Respondent No. 1 and 2 in their execution application have primarily sought for an award of Rs. 1,55,00,000/- while abandoning the other prayers or reliefs granted in the Consumer Complaint. Therefore, the execution proceedings initiated by the Respondent Nos. 1 and 2 are proceedings to recover the amounts under the garb of seeking an award. Since, the interim moratorium has commenced against the appellant, the appellant is estopped from undertaking any preferential payments, as such the continuation of the execution proceedings against the appellant would constitute an act of double jeopardy. 15. The appellant cited P. Mohanraj and Others v. Shah Brothers Ispat Private Limited (2021) 6 SCC 258, where it was held that proceedings under Section 138 of the NI Act are covered under "any legal action or proceeding pending" even though they are quasi- criminal in nature, thus also staying criminal proceedings against the corporate debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g homebuyers, who are already vulnerable due to the developer's delays. The respondents assert that staying such penalties would set a dangerous precedent where developers can indefinitely delay justice by invoking insolvency proceedings. 19. The respondents submitted that the moratorium imposed under Section 96 of the IBC does not extend to criminal proceedings under Section 27 of the CP Act. The respondents contend that the moratorium under Section 96 of the IBC is limited to recovery actions and civil proceedings against the debtor, with no applicability to criminal proceedings. It is submitted that Section 27 of the CP Act provides for punitive action against those who fail to comply with orders of the consumer forum, which is penal in nature and distinct from debt recovery proceedings. The NCDRC, by its order dated 07.02.2024, has rightly held that the moratorium under IBC does not cover criminal proceedings, and such an interpretation is consistent with established judicial precedents. Additionally, the respondents contend that the nature of proceedings under Section 27 of the CP Act is inherently punitive, as it prescribes punishment, including imprisonment, for noncomplian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Singh and Another ( 2013 ) 9 SCC 491, highlighted the severe impact of delays in execution proceedings, observing that such delays deprive decree-holders of the fruits of litigation. Given that the NCDRC award falls within the category of "excluded debts," the moratorium does not extend to criminal proceedings initiated for its enforcement, these proceedings are merely delay tactics on part of the appellant. 23. The respondents highlighted the prolonged hardship faced by the decree holders due to the appellant's repeated delays in execution proceedings. Despite this Court's ruling in Vijay Madanlal Chaudhary & Ors. v. Union of India 2021 SCC OnLine SC 1048, which held that orders granting "no coercive action" should not be treated as a stay of proceedings, the appellant has used such an order to stall the matter. Through a timeline of events the respondents sought to demonstrate the appellant's continued non-compliance, starting from the booking of flats in 2011, the filing of consumer complaints in 2017, the NCDRC's ruling in favour of the consumers in 2018, and the subsequent delays in execution proceedings. Non-bailable warrants were issued against Saranga Aggarwal in 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to "debt" as defined under the IBC and not to regulatory penalties imposed for non-compliance with consumer protection laws. A careful reading of the statutory scheme of the IBC suggests that penalties arising from regulatory infractions are not covered under the ambit of "debt" as envisioned under the Code. 29. It is well settled that there exists a distinction between punitive actions and criminal proceedings. While a criminal proceeding is initiated by the State against an accused to determine guilt and impose penal consequences, punitive actions in the regulatory sphere, such as those imposed by the NCDRC, are meant to ensure compliance with the law and to act as a deterrent against future violations. Section 27 of the CP Act empowers consumer fora to impose penalties to ensure adherence to consumer protection norms. These penalties do not arise from any "debt" owed to a creditor but rather from the failure to comply with the remedial mechanisms established under consumer law. Unlike a criminal prosecution, which requires the establishment of mens rea, the penalties imposed by NCDRC are regulatory in nature and aim to protect the public interest rather than to punish crimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, the damages awarded by the NCDRC arise from a consumer dispute, where the appellant has been held liable for deficiency in service. Such damages are not in the nature of ordinary contractual debts but rather serve to compensate the consumers for loss suffered and to deter unethical business practices. Courts and tribunals, including the NCDRC, exercise their statutory jurisdiction to award such damages, and these are distinct from purely financial debts that may be subject to restructuring under the IBC. Since such damages are covered under "excluded debts" as per Section 79(15) of the IBC, they do not get the benefit of the moratorium under Section 96 of the IBC, and their enforcement remains unaffected by the initiation of insolvency proceedings. 34. Furthermore, the rationale behind excluding such liabilities from the moratorium is rooted in public policy considerations. If damages arising from legal violations, consumer protection claims, or penalties imposed by courts and tribunals were to be shielded under the moratorium, it would create an unfair advantage for errant entities and individuals, allowing them to evade their legal obligations under the guise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense delays and financial hardship, would be further deprived of relief. The legislative intent behind consumer protection laws is to safeguard the interests of consumers and ensure accountability from service providers. Permitting a stay on regulatory penalties under the guise of insolvency proceedings would undermine the very purpose of the CP Act and embolden errant developers to escape liability through insolvency proceedings. Homebuyers, many of whom invest their life savings in purchasing residential units, are already in a precarious position due to delays in possession and breaches of contractual obligations. Staying penalties that serve as deterrence against such unfair practices would render consumer protection mechanisms ineffective and erode trust in the regulatory framework. 38. Judicial precedents support the view that statutory penalties and regulatory actions do not automatically fall within the ambit of an insolvency moratorium. In P. Mohanraj (supra) this Court held that a moratorium under Section 14 of the IBC extends to proceedings under Section 138 of the NI Act. However, a distinction between debt recovery proceedings and punitive actions needs to be created, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
