NCDRC Penalties for Delay in Possession Are Not Stayed by IBC Interim Moratorium, Supreme Court Holds

A bench of Justices Vikram Nath and Prasanna B. Varale heard an appeal by Saranga Anilkumar Aggarwal challenging the National Consumer Disputes Redressal Commission’s refusal to stay execution of 27 penalty orders imposed for delayed delivery of possession to homebuyers. The principal question before the Court was whether an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC) stayed execution proceedings under Section 27 of the Consumer Protection Act (CP Act).

The Court dismissed the appeal and held that penalties imposed by consumer fora were regulatory in nature and did not constitute a "debt" within the meaning of the IBC moratorium applicable to personal guarantors. The Court emphasized the distinction between civil recovery proceedings and regulatory or penal proceedings, noting that criminal or punitive proceedings did not automatically fall within the moratorium unless expressly covered by statute. The Court, in its reasoning, observed: “We find that 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. The penalties imposed by the NCDRC are regulatory in nature and arise due to non-compliance with consumer protection laws. They are distinct from ‘debt recovery proceedings’ under the IBC.” The Court further noted that Section 96 stayed “any legal action or proceedings relating to any debt” only insofar as those proceedings concerned debts as defined by the Code, and that liabilities falling within the statutory list of excluded debts under Section 79(15) did not attract moratorium protection. The Bench directed that “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.”

Background The dispute arose from multiple consumer complaints filed by homebuyers against the appellant developer alleging delay in possession, deficiency of service and breach of contract. The NCDRC allowed the complaints in a final order dated 10.08.2018, directed completion of construction, issuance of occupancy certificates and handover of possession, and imposed 27 penalties for failure to deliver possession within a reasonable time. Decree-holders sought execution before the NCDRC after alleged non-compliance.

The appellant was a proprietor and personal guarantor in insolvency proceedings initiated under Section 95 of the IBC; an interim moratorium under Section 96 had been triggered. The appellant sought a stay of the NCDRC execution proceedings on the ground that Section 96 barred “any legal action or proceedings… in respect of any debt” from proceeding during the moratorium. The NCDRC rejected the stay application, relying on this Court’s precedents including State Bank of India v. V. Ramakrishnan and Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd., and distinguishing a Bombay High Court order that had stayed NI Act proceedings as being per incuriam in the circumstances.

On appeal, the appellant relied on authorities holding that IBC moratoria had, in certain contexts, extended to quasi-criminal recovery proceedings; respondents countered that Section 27 CP Act proceedings were penal/regulatory and primarily aimed at compliance and deterrence rather than recovery of a commercial debt, and that excluded debts under Section 79(15) were not covered by moratorium. The Supreme Court examined the statutory scheme of the IBC, the nature of penalties under the CP Act and relevant precedents, and concluded that the NCDRC’s penalties were not debts for purposes of Section 96. The appeal was dismissed and the appellant was directed to comply with the NCDRC penalties within eight weeks; pending applications stood disposed of.

Case Details: Case No.: Civil Appeal No. 4048 of 2024 Case Title: Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth & Ors. Appearances: For the Petitioner(s): Mr. K. Parmeshwar, Senior Counsel For the Respondent(s): Mr. Shashwat Parihar, Counsel