Consumer protection penalties do not qualify as debt under the Insolvency Code; execution proceedings must proceed even amidst insolvency claims.

PER PADMA PANDEY, PRESIDING MEMBER MA/79/2025

1.Sh. Sanjeev Kumar Jain, Managing Director of Judgment Debtor (Parsvnath Developers Limited) has filed MA/79/2025 under Section 96 of the Insolvency and Bankruptcy Code, 2016 (as amended up-to-date) seeking sine-die adjournment of captioned proceedings in view of moratorium commenced under the provisions of Section 96 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal, New Delhi in C.P.(IB)-627 (ND)/2024 titled as “Samman Capital Ltd. Vs. Sanjeev Kumar Jain (Personal Guarantor of Judgment Debtor M/s Parsvnath Developers Limited)”. To this effect, copy of the order dated 03.10.2024 (Annexure-I) passed by the National Company Law Tribunal, New Delhi has been annexed along with the application.

2. Reply to the aforesaid application has been filed by the counsel for the Decree Holder, wherein the Decree Holder has opposed the averments made in the application and submitted that the IBC provisions do not bar the present proceedings. Section 14 IBC provides for a moratorium applicable only upon admission of an application against a corporate debtor. Section 96 IBC applies to the personal debts of the individual applicants and does not affect proceedings against the Company (the Judgment Debtor). There is no Section 14 IBC moratorium against the Company and as such, the execution proceedings against the Judgment Debtor must proceed. Pressing the aforesaid, the counsel for the Decree Holder prayed for the dismissal of the application.

3. Heard. After giving our thoughtful consideration, to the contentions raised and material on record, we are of the considered opinion, that the instant misc. application is liable to be dismissed for the reasons to be recorded hereinafter.

4. It is well settled law that in criminal proceedings, the provisions of Section 94 to 96 of IBC shall not apply to consumer commissions. Our this view is supported by the law laid down by the Hon’ble Supreme Court in Saranga Anil Kumar Aggarwal Vs. Bhavesh Dhiraj Lal Seth & Others, Civil Appeal No(s).4048 of 2024, decided on 04.03.2025, 2025 INSC 314, wherein it has been held:-

35. The penalties imposed by the NCDRC arise due to non-compliance with consumer protection laws and serve a regulatory function rather than constituting "debt recovery proceedings." This distinction is crucial. The IBC is designed to deal with insolvency resolution and financial distress, whereas consumer protection laws exist to uphold consumer rights and ensure fair business practices. The penalties under Section 27 of the CP Act are aimed at compelling compliance and cannot be equated with recovery of an outstanding debt. The appellant cannot claim that such penalties fall within the 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 the 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 the law.

36. The distinction between proceedings under Section 138 of the NI Act and those under Section 27 of the CP Act must also be examined. Proceedings under Section 138 of the NI Act pertain to dishonour of cheques and are criminal in nature, where the assumption of debt is inherent in the offence itself. The dishonour of a cheque indicates a failure to honour financial obligations, and the proceedings are initiated for the recovery of the debt in question. In contrast, Section 27 of the CP Act deals