Moratorium U/S 96 IBC Doesn’t Extend To Regulatory Penalties Imposed For Non-Compliance With Consumer Protection Laws: Supreme Court
The Supreme Court dismissed a Civil Appeal against the NCDRC's Judgment in which multiple penalties were imposed on a proprietor for failing to deliver possession of residential units to homebuyers as per the agreed timeline.
The Supreme Court held that the moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) does not extend to regulatory penalties imposed for non-compliance with consumer protection laws.
The Court held thus in a Civil Appeal preferred against the Judgment of the National Consumer Disputes Redressal Commission (NCDRC) in which multiple penalties (27 in total) were imposed on a proprietor for failing to deliver possession of residential units to homebuyers as per the agreed timeline.
The two-Judge Bench comprising Justice Vikram Nath and Justice Prasanna B. Varale observed, “… this Court finds no merit in the appellant’s arguments. 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 Bench emphasised that the objective of the IBC is to provide a mechanism for resolving financial distress, not to nullify obligations arising under regulatory statutes.
Senior Advocate K. Parmeshwar appeared for the Appellant while Advocate Shashwat Parihar appeared for the Respondents.
Facts of the Case
The Appellant sought a stay on the penalty proceedings before the NCDRC, contending that an Application under Section 95 of IBC has been filed against them, triggering an interim moratorium under Section 96 of IBC. The Apex Court in this case, was to adjudicate whether execution proceedings under Section 27 of the Consumer Protection Act, 1986 (CPA), can also be stayed during an interim moratorium under Section 96 of the IBC. This case arose from an Application filed by the Appellant who was the proprietor, challenging the execution of multiple penalty Orders imposed by NCDRC during the pendency of insolvency proceedings against the Corporation.
The Appellant was engaged in real estate development and had several pending consumer complaints before NCDRC filed by homebuyers alleging delay in possession, deficiency in service, and breach of contractual obligations. The NCDRC in its final Judgment 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.
Reasoning
The Supreme Court in view of the above facts, said, “If the appellant’s argument is accepted, homebuyers, who have already suffered immense 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.”
The Court added that the 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 and staying penalties that serve as deterrence against such unfair practices would render consumer protection mechanisms ineffective and erode trust in the regulatory framework.
“… a distinction between debt recovery proceedings and punitive actions needs to be created, and therefore all criminal liabilities do not fall within the scope of the moratorium unless explicitly covered under the IBC. Consequently, penalties imposed by regulatory bodies in the public interest cannot be stayed merely because insolvency proceedings are ongoing”, it further noted.
The Court observed that this case does not involve a mere financial dispute but concerns the enforcement of consumer rights through regulatory penalties and given that the legislative intent behind the CPA is to ensure compliance with consumer welfare measures, staying such penalties would be contrary to public policy.
“Further, the appellant cannot invoke insolvency proceedings as a shield to evade statutory liabilities”, it also remarked.
Accordingly, the Apex Court dismissed the Appeal and directed the Appellant to comply with the penalties imposed by the NCDRC within a period of 8 weeks.
Cause Title- Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth & Ors. (Neutral Citation: 2025 INSC 314)
Appearance:
Appellant: Senior Advocate K. Parmeshwar, AOR Vinam Gupta, and Advocate Aamir Siraj.
Respondents: AOR Shashwat Anand, Advocates Shashwat Parihar, Rishabh Kumar, Deepanshu Badiwal, Dhruva Vig, and Prabhat Ranjan Raj.
