SC Ruled IBC Moratorium Does Not Protect Individuals from Consumer Law Penalties
Last Updated on March 4, 2025 by NewsDesk SLC
The Supreme Court held on Tuesday that the interim moratorium under the insolvency and bankruptcy code does not protect people or companies from regulatory sanctions imposed by consumer protection laws. A Bench of Judges Vikram Nath and Prasanna B Varale approved the important verdict by deciding whether the execution procedures under section 27 of the 1986 consumer protection law can also remain during an interim moratorium under section 96 of the insolvency and bankruptcy code (IBC).
Under section 96 of the IBC, an interim moratorium enters into force and leads to a temporary suspension of all pending legal procedures against a corporate debtor. It also leads to the execution of any sentence against the corporate debtor.
Saranga Anilkumar Aggarwal, argued that he faced the insolvency procedures before the National Company Law (NCLT) under the IBC and, therefore, there should be a suspension of the execution of an NCDRC order (National Commission of Representations of Disputes to the Consumer). “The sanctions imposed by the NCDRC are of a regulatory nature and do not constitute ‘debt’ under the IBC. The moratorium under section 96 of the IBC does not extend to the regulatory sanctions imposed by breach of the consumer protection laws,” said the main court.
The bench rejected an appeal that seeks a suspension of the sanctions imposed by the NCDRC in a case that implies delayed possession of residential units. The case arose from an appeal filed by Aggarwal, owner of the East and West builders, against multiple penalty orders (27 in total) imposed by the NCDRC. The sanctions were collected due to the lack of possession of developer residential units to housing buyers within the agreed timeline.
Respondents Bhavesh Dhirajlal Sheth and others had initially approached the NCDRC, citing delays in possession and deficiencies in the service.
In a 2018 judgment, the Consumer Forum ruled in its favor and addressed the developer to complete the construction work, obtained the necessary occupation certificates and delivered the properties. However, due to continuous breach, the NCDRC imposed regulatory sanctions and initiated execution procedures. Aggarwal argued that it faces insolvency procedures under section 95 of the IBC, that the sanctions and execution procedures must remain in the light of the interim moratorium under section 96.
The developer cited financial difficulties and ongoing agreements with other decrees holders such as reasons to seek relief of execution procedures. The Bank ruled that there was a fundamental distinction between the procedures related to civil debt and regulatory sanctions. He said that the sanctions imposed by the NCDRC are of a regulatory nature and serve to guarantee compliance with consumer protection laws, instead of acting as debt recovery mechanisms.
He said that the moratorium under section 96 of the IBC applies only to debts as defined under the code, while regulatory sanctions are outside its scope.
