An interim moratorium under Section 96 of IBC does not stay execution of penalty proceedings under Consumer Protection Act
Case title: Saranga Anilkumar Aggarwal Versus Bhavesh Dhirajlal Sheth & Ors.
Civil Appeal No(S). 4048 Of 2024;
March 04, 2025
In a significant development, the Supreme Court on March 4ruled that an interim moratorium under Section 96 of the Insolvency & Bankruptcy Code, 2016 (“IBC”) does not apply to penalty proceedings under Section 27 of the Consumer Protection Act, 1986 (“CP Act”).
The appellant ,builder is engaged in real estate development and a consumer complaint filed 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 builder 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.
Decree holders, subsequently filed execution applications seeking execution of the abovementioned order of the NCDRC as the appellant failed to comply with the directions of the NCDRC.
Against the execution petition the builder sought a stay on the penalty proceedings, arguing that the penalties imposed by the NCDRC were akin to debt recovery proceedings and should be stayed during the moratorium because the moratorium barred further legal actions, including the execution of penalties.
The home buyers contended that the penalties under Section 27 of the CP Act are regulatory and punitive, aimed at ensuring compliance with consumer protection laws, and do not constitute “debt” under the IBC. They added that penalties are “excluded debts” under Section 79(15) of the IBC, which include fines and damages imposed by courts or tribunals.
The judgment authored by Justice Vikram Nath emphasized that the penalties imposed by the consumer redressal forums are punitive measures to deter unfair trade practices The Court explained that Section 79(15) of the IBC excludes certain liabilities, such as fines and penalties, from the moratorium’s effect. As a result, penalties imposed by Consumer Redressal Forums under the regulatory statutes like the CP Act do not fall within the scope of the moratorium
“The penalties imposed by the NCDRC arise due to non-compliance with consumer protection laws and serve a regulatory function rather than constituting “debt recovery proceedings.”
Further ,”This distinction is crucial. The IBC is designed to deal with insolvency resolution and financial distress, whereas consumer protection laws exist to uphold consumer rights and ensure fair business practices. The penalties under Section 27 of the CP Act are aimed at compelling compliance and cannot be equated with recovery of an outstanding debt.”
Further “Such penalties under CP Act do not constitute financial liabilities owed to a creditor but rather statutory obligations enforced to uphold consumer rights.”
Hence court refused to stay execution proceeding for compliance of Consumer Order
Dr Prem lata
