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

New Delhi, Mar 4: 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.