2025 Supreme(SC) 447

SUPREME COURT OF INDIA
VIKRAM NATH, PRASANNA B. VARALE, JJ.
Saranga Anilkumar Aggarwal – Appellant
Versus
Bhavesh Dhirajlal Sheth & Ors. – Respondents
Civil Appeal No(s). 4048 of 2024
Decided on : 04-03-2025

IMPORTANT POINTS
(1) Penalties imposed by NCDRC are regulatory in nature and do not constitute “debt” under IBC – Moratorium under Section 96 of IBC does not extend to regulatory penalties imposed for non-compliance with consumer protection laws.
(2) IBC, being a special law meant to balance interests of all stakeholders, does not intend to provide relief to those who have been held liable for statutory breaches or misconduct.
(3) There is a fundamental 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.
(4) Permitting stay on regulatory penalties under guise of insolvency proceedings would undermine very purpose of CP Act and embolden errant developers to escape liability through insolvency proceedings.

Headnote:

(A) Consumer Protection Act, 1986 – Section 27 – Insolvency and Bankruptcy Code, 2016 – Sections 95 and 96 – Debt – Penalty – There is a fundamental 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 – Penalties imposed by NCDRC are regulatory in nature and arise due to non-compliance with consumer protection laws – They are distinct from “debt recovery proceedings” under IBC – Moratorium under Section 96 of IBC is distinct from a corporate moratorium under Section 14 of IBC – Section 96 of IBC applies to individuals and personal guarantors – There exists distinction between punitive actions and criminal proceedings – While criminal proceeding is initiated by State against accused to determine guilt and impose penal consequences, punitive actions in regulatory sphere, such as those imposed by NCDRC, are meant to ensure compliance with law and to act as a deterrent against future violations – Section 27 of CP Act empowers Consumer Fora to impose penalties to ensure adherence to consumer protection norms – These penalties do not arise from any “debt” owed to a creditor but rather from failure to comply with remedial mechanisms established under consumer law. (Paras 27, 28 and 29)

(B) Consumer Protection Act, 1986 – Section 27 – Insolvency and Bankruptcy Code, 2016 – Sections 95 and 96 – Debt – Penalty – Distinction must be drawn between moratorium applicable to a corporate debtor under Section 14 of IBC and interim moratorium applicable to individuals and personal guarantors under Section 96 of IBC – Former is much broader in scope and stays all proceedings against corporate debtor, including execution and enforcement actions – However, Section 96 of IBC is more limited in its scope, staying only legal actions or proceedings in respect of any debt – Unlike corporate insolvency proceedings, where goal is a comprehensive resolution of company’s liabilities, individual insolvency proceedings are designed primarily for restructuring personal debts and providing relief to the debtor – In present case, damages awarded by NCDRC arise from a consumer dispute, where appellant has been held liable for deficiency in service – Such damages are not in nature of ordinary contractual debts but rather serve to compensate consumers for loss suffered and to deter unethical business practices – Courts and Tribunals, including NCDRC, exercise their statutory jurisdiction to award such damages, and these are distinct from purely financial debts that may be subject to restructuring under IBC – If damages arising from legal violations, consumer protection claims, or penalties imposed by Courts and Tribunals were to be shielded under moratorium, it would create unfair advantage for errant entities and individuals, allowing them to evade their legal obligations under guise of insolvency – IBC, being a special law meant to balance interests of all stakeholders, does not intend to provide relief to those who have been held liable for statutory breaches or misconduct. (Paras 30, 33 and 34)

(C) Consumer Protection Act, 1986 – Section 27 – Insolvency and Bankruptcy Code, 2016 – Sections 95 and 96 – Debt – Penalty – Penalties under Section 27 of CP Act are aimed at compelling compliance and cannot be equated with recovery of an outstanding debt – Appellant cannot claim that such penalties fall within scope of a debt moratorium, as they do not constitute financial liabilities owed to a creditor but rather statutory obligations enforced to uphold consumer rights – Allowing stay of such penalties would effectively enable businesses to flout consumer protection mandates by merely initiating insolvency proceedings, which would be an unintended and dangerous consequence of a misinterpretation of law – Primary focus of proceedings under Section 27 of CP Act is to enforce consumer rights and ensure that service providers fulfil their obligations – Permitting stay on regulatory penalties under guise of insolvency proceedings would undermine very purpose of CP Act and embolden errant developers to escape liability through insolvency proceedings – Penalties imposed by regulatory bodies in public interest cannot be stayed merely because insolvency proceedings are ongoing – Penalties imposed by NCDRC are regulatory in nature and do not constitute “debt” under IBC – Moratorium under Section 96 of IBC does not extend to regulatory penalties imposed for non-compliance with consumer protection laws – Objective of IBC is to provide a mechanism for resolving financial distress, not to nullify obligations arising under regulatory statutes. (Paras 35, 36, 37, 38, 39 and 40)

Facts of the case:

Court is called upon to adjudicate whether execution proceedings under Section 27 of Consumer Protection Act, 1986, can also be stayed during an interim moratorium under Section 96 of IBC.

Findings of Court:

Present case does not involve a mere financial dispute but concerns enforcement of consumer rights through regulatory penalties. Given that legislative intent behind CP Act is to ensure compliance with consumer welfare measures, staying such penalties would be contrary to public policy.

Result : Appeal dismissed.