Supreme Court Clarifies Scope of Interim Moratorium under IBC on Consumer Protection Act Penalties: Saranga Anil Kumar Aggarwal vs. Bhavesh Dhirajlal Sheth (2025)

Date of the Judgment: March 04, 2025
Citation: 2025 INSC 314
Judges: Vikram Nath, J., Prasanna B. Varale, J.

Does the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC) apply to penalties imposed under the Consumer Protection Act (CP Act)? This question was recently addressed by the Supreme Court in a case involving a real estate developer facing penalties for failing to deliver residential units to homebuyers on time. The Supreme Court clarified that the interim moratorium under the IBC does not extend to penalties imposed under the CP Act, as these are regulatory in nature and not considered “debt recovery proceedings.” The judgment was delivered by a bench comprising Justice Vikram Nath and Justice Prasanna B. Varale.

Case Background

The appellant, Saranga Anil Kumar Aggarwal, is a real estate developer facing multiple consumer complaints before the National Consumer Disputes Redressal Commission (NCDRC) for delays in delivering possession of residential units, deficiency in service, and breach of contractual obligations.

In a judgment dated August 10, 2018, the NCDRC directed the appellant to complete construction, obtain the necessary occupancy certificate, and hand over possession of the units. The NCDRC also imposed 27 penalties on the appellant for failing to deliver possession within a reasonable time.

The respondents, Bhavesh Dhirajlal Sheth & Ors., as decree holders, filed execution applications seeking enforcement of the NCDRC’s order, as the appellant had failed to comply with the directions.

Facing insolvency proceedings before the National Company Law Tribunal (NCLT) under the IBC, the appellant moved an application before the NCDRC seeking a stay of the execution proceedings. The appellant argued that an interim moratorium had been triggered under Section 96 of the IBC due to insolvency proceedings initiated against them under Section 95 of the IBC, thus barring further legal proceedings, including the ongoing execution proceedings before the NCDRC.

Timeline:

Course of Proceedings

The appellant, facing insolvency proceedings before the NCLT, moved an application before the NCDRC seeking a stay of execution proceedings. The NCDRC rejected this application on February 7, 2024, holding that consumer claims and the penalties imposed did not fall within the moratorium under the IBC.

The NCDRC relied on the Supreme Court’s decision in State Bank of India v. V. Ramakrishnan & Anr. [(2018) 17 SCC 394], clarifying that Sections 96 and 101 of the IBC provide a distinct moratorium applicable to personal guarantors, separate from the moratorium 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.

Additionally, the NCDRC placed significant reliance on the Supreme Court’s ruling in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. [(2023) 10 SCC 545], which reaffirmed that criminal proceedings against directors or signatories of a company do not abate merely because the corporate debtor is undergoing insolvency resolution.

Legal Framework

Several sections from the Insolvency and Bankruptcy Code, 2016 (IBC) and the Consumer Protection Act, 1986 (CP Act) are relevant to this case:

• Section 27 of the Consumer Protection Act, 1986: This section provides for penalties for non-compliance with orders of the consumer forum. It states:

  “Where a trader or person against whom a complaint is made [or the complainant] fails or omits to comply with any order made by the District Forum, the State Commission or the National Commission, such trader or person [or complainant] shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to three years, or with fine which shall not be less than two thousand rupees but which may extend to ten thousand rupees, or with both.”

• Section 95 of the Insolvency and Bankruptcy Code, 2016: This section allows creditors to initiate insolvency proceedings against individuals or personal guarantors to corporate debtors.
• Section 96 of the Insolvency and Bankruptcy Code, 2016: This section provides for an interim moratorium upon the filing of an application under Section 95. It states:

  “When an application is filed under section 94 or section 95, an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application.”

  During the interim moratorium, any legal action or proceedings pending in respect of any debt shall be deemed to have been stayed.

• Section 79(15) of the Insolvency and Bankruptcy Code, 2016: This section defines “excluded debts” which are not subject to the moratorium. It includes liabilities arising from fines imposed by courts or tribunals, damages for negligence or breach of obligation, maintenance liabilities, student loans, and other prescribed debts.

Arguments

Appellant’s Arguments:

• The appellant contended that Section 96 of the IBC creates an absolute bar on any proceedings against the debtor relating to any debt once an interim moratorium is in place.
• It was argued that the penalties imposed by the NCDRC arise out of financial obligations or debts and must, therefore, be stayed.
• The appellant submitted that the proceedings under Section 27 of the CP Act are effectively recovery proceedings, as the respondents primarily sought an award of Rs. 1,55,00,000/- while abandoning other reliefs granted in the Consumer Complaint.
• 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 debtor.
• The appellant also relied upon the judgment of this Court in the matter of SBI V. V.Ramakrishnan (supra), wherein it was held that when an application is filed under Part III of the IBC, an interim moratorium or a moratorium is applicable in respect of any debt due and that the protection under Section 96 of the IBC is far greater than that under Section 14 of the IBC.
• Reliance was also placed on the judgment of this Court in Kaushalya Devi Massand vs. Roopkishore Khore [(2011) 4 SCC 593], holding that the gravity of complaint under the NI Act cannot be equated with an offence under the provisions of the Indian Penal Code, 1860 or other criminal offences and that an offence under Section 138 of the NI Act is almost in the nature of civil wrong which has been given criminal overtones.

Respondents’ Arguments:

• The respondents contended that the penalties imposed by the NCDRC are not merely monetary claims but punitive measures to deter unfair trade practices.
• They argued that consumer protection proceedings serve a vital public function in ensuring compliance with orders protecting homebuyers, who are already vulnerable due to the developer’s delays.
• 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.
• It was 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 respondents argued that the nature of proceedings under Section 27 of the CP Act is inherently punitive, as it prescribes punishment, including imprisonment, for non-compliance with consumer forum orders.
• The respondents cited Kunhayammed & Ors. v. State of Kerala & Anr. [(2000) 6 SCC 359] and Khoday Distilleries Limited & Ors. v. Sri Mahadeshwara Sahakara Sakkare Karkhane Limited, Kollegal [(2019) 4 SCC 376], submitting that a non-speaking dismissal does not decide any legal issue and, therefore, does not attract the doctrine of merger.
• The respondents further argued that the moratorium under IBC is designed to protect the assets of the corporate debtor and the personal guarantor from alienation. However, not all debts are covered under this protection.
• The respondents emphasized that Section 27 of the CP Act, imposes criminal liability, including imprisonment for non-compliance with consumer court orders. This Court in Satyawati v. Rajinder 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.

Arguments Table

Issues Framed by the Supreme Court

1. Whether the execution of penalty orders passed by the NCDRC can be stayed under the interim moratorium provisions of Section 96 of the IBC.

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities

The court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• State Bank of India v. V. Ramakrishnan & Anr. [(2018) 17 SCC 394]:* The Court relied on this case to clarify that Sections 96 and 101 of the IBC provide a distinct moratorium applicable to personal guarantors, separate from the moratorium under Section 14 applicable to corporate debtors.
• Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. [(2023) 10 SCC 545]:* The Court placed significant reliance on this ruling, which reaffirmed that criminal proceedings against directors or signatories of a company do not abate merely because the corporate debtor is undergoing insolvency resolution.
• P. Mohanraj and Others v. Shah Brothers Ispat Private Limited [(2021) 6 SCC 258]:* The Court distinguished this case, noting that it dealt with proceedings under Section 138 of the NI Act, which pertain to dishonor of cheques and are criminal in nature, where the assumption of debt is inherent in the offence itself.

What weighed in the mind of the Court?

The Supreme Court emphasized the distinction between civil and criminal proceedings concerning a debt moratorium. While civil proceedings are generally stayed under IBC provisions, criminal proceedings, including penalty enforcement, do not automatically fall within its ambit unless explicitly stated by law. The Court also highlighted the difference between the moratorium applicable to a corporate debtor under Section 14 of the IBC and the interim moratorium applicable to individuals and personal guarantors under Section 96 of the IBC, noting that the latter is more limited in scope.

Logical Reasoning

The following flowchart demonstrates the court’s logical reasoning for Issue 1:

Key Takeaways

• The interim moratorium under Section 96 of the IBC does not extend to penalties imposed under the CP Act for non-compliance with consumer protection laws.
• Penalties imposed by the NCDRC are regulatory in nature and distinct from “debt recovery proceedings” under the IBC.
• The legislative intent behind consumer protection laws is to safeguard the interests of consumers and ensure accountability from service providers.

Directions

The appellant is directed to comply with the penalties imposed by the NCDRC within a period of eight weeks from the date of this judgment.

Development of Law

The ratio decidendi of the case is that the interim moratorium under Section 96 of the IBC does not extend to regulatory penalties imposed for non-compliance with consumer protection laws. This clarifies the scope of the interim moratorium and ensures that consumer rights are not undermined by insolvency proceedings.

Conclusion

In conclusion, the Supreme Court dismissed the appeal, holding that the penalties imposed by the NCDRC are regulatory in nature and do not constitute “debt” under the IBC. The court clarified that the moratorium under Section 96 of the IBC does not extend to regulatory penalties imposed for non-compliance with consumer protection laws, thereby upholding the interests of consumers and ensuring accountability from service providers.