Insolvency and Bankruptcy Code, 2016
Section 79(15), 96
Negotiable Instruments Act, 1881
Section 138
Consumer Protection Act, 1986
Section 27
The damages awarded by the NCDRC arise from a consumer dispute, where the appellant has been held liable for deficiency in service. Such damages are not in the nature of ordinary contractual debts but rather serve to compensate the consumers for loss suffered and to deter unethical business practices— The appellant argues that all debts and all proceedings relating to debt are automatically stayed under Section 96 of the IBC. The respondents, on the other hand, contend that the penalties imposed by NCDRC are distinct from "debt recovery" proceedings and should not fall within the ambit of the interim moratorium.
In the present case, the damages awarded by the NCDRC arise from a consumer dispute, where the appellant has been held liable for deficiency in service. Such damages are not in the nature of ordinary contractual debts but rather serve to compensate the consumers for loss suffered and to deter unethical business practices. Courts and tribunals, including the NCDRC, exercise their statutory jurisdiction to award such damages, and these are distinct from purely financial debts that may be subject to restructuring under the IBC. Since such damages are covered under "excluded debts" as per Section 79(15) of the IBC, they do not get the benefit of the moratorium under Section 96 of the IBC, and their enforcement remains unaffected by the initiation of insolvency proceedings.
The present case does not involve a mere financial dispute but concerns the enforcement of consumer rights through regulatory penalties. Given that the legislative intent behind the CP Act is to ensure compliance with consumer welfare measures, staying such penalties would be contrary to public policy. Further, the appellant cannot invoke insolvency proceedings as a shield to evade statutory liabilities. The objective of the IBC is to provide a mechanism for resolving financial distress, not to nullify obligations arising under regulatory statutes. 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 appeal is accordingly dismissed, and 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. .....Saranga Anilkumar Aggarwal =VS= Bhavesh Dhirajlal Sheth, (Civil), 2025(2) [19 LM (SC) 1] ....View Full Judgment