The Supreme Court in Saranga Anil Kumar Aggarwal v. Bhavesh Dhirajlal Sheth & Ors., 2025 SCC Online SC 493, has addressed a crucial legal question concerning the intersection of the Consumer Protection Act, 1986 (“CP Act”), and the Insolvency and Bankruptcy Code, 2016 (“IBC”).

The case examined whether execution proceedings under Section 27 of the CP Act —which prescribes penalties for non-compliance—can be stayed when an interim moratorium under Section 96 of IBC is in effect.

Rejecting the Appellant’s plea, the Court reaffirmed that regulatory penalties are distinct from debt recovery proceedings and do not fall within the protective scope of an interim moratorium under Section 96 of IBC. This judgment clarifies the extent of IBC’s moratorium provisions, ensuring that statutory penalties for non-compliance remain enforceable despite ongoing insolvency proceedings.

BACKGROUND:

The dispute arose on account of failure of real estate developer (Appellant) to deliver possession of flats to homebuyers. In response to multiple consumer complaints, the National Consumer Dispute Redressal Commission (“NCDRC”) directed the Appellant to complete construction, hand over possession and imposed penalties on the Appellant for deficiency in service. When homebuyers sought enforcement of these penalties, the Appellant contested the execution proceedings on the grounds of the interim moratorium imposed under Section 96 of IBC, triggered by ongoing insolvency proceedings which were initiated under Section 95 of IBC.

PROCEDURAL HISTORY:

The NCDRC vide its Order dated 07.02.2024 held that the interim moratorium under Section 96 of the IBC did not bar penalty proceedings under Section 27 of the CP Act against a personal guarantor.

NCDRC’s ORDER:

NCDRC while relying on State Bank of India v. V. Ramakrishnan & Anr., (2018) 17 SCC 394, observed that interim moratorium under Section 96 & 101 of IBC applicable to personal guarantors is distinct from the broader moratorium under Section 14, applicable to corporate debtors. The NCDRC observed that criminal proceedings under Section 27 of the CP Act are unaffected by the interim moratorium under Section 96 of the IBC and held that individuals associated with a Corporate Debtor remain liable.

Additionally, the NCDRC emphasized that the penalties imposed were regulatory and did not constitute financial obligations, making them ineligible for protection under the IBC’s moratorium provisions.

APPEAL BEFORE THE  APEX COURT (SC):

The Appellant before the Supreme Court argued that the interim moratorium under Section 96 applies to all legal actions related to debt and that the penalties imposed by NCDRC should be considered financial obligations and be treated as a form of debt recovery proceedings.

The Respondents countered that penalties under Section 27 of the CP Act are punitive and do not fall within the definition of “debt” under the IBC.

 SUPREME COURT’s RULING:

The Court upheld the NCDRC’s judgment and ruled that penalties imposed by the NCDRC are regulatory and arise from statutory obligations rather than financial liabilities owed to creditors. The Court emphasized that the IBC’s moratorium provisions are not intended to shield individuals from regulatory penalties-which are technical Excluded Debts.

Unlike civil debt enforcement, Section 27 of the CP Act ensures compliance with consumer forum orders and carries the possibility of imprisonment for non-compliance, indicating its penal rather than debt-recovery nature. The Court clarified that the moratorium under Section 96 applies only to “debts” and does not extend to fines, damages for negligence, or penalties for statutory violations.

The Court distinguished between the moratorium under Section 14 of the IBC, which applies to corporate debtors and is broader in scope, and the moratorium under Section 96(1)(b)(i) of IBC, which applies to individuals and personal guarantors. Citing P. Mohanraj & Ors. v. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258, the Court reiterated that a distinction must be made between debt recovery proceedings and penalties imposed by regulatory bodies in the public interest cannot be stayed on account of pending insolvency proceedings.

Furthermore, the Court emphasized that the legislative intent behind Section 96 of the IBC must be upheld, and a blanket stay on all penalties would undermine consumer protection laws. The IBC is designed to address financial insolvency and restructuring, not to nullify statutory obligations. Allowing consumer penalties to fall under the moratorium would create an unfair advantage for defaulting developers.

The Court also clarified that damages awarded by the NCDRC arise from a consumer dispute and do not constitute ordinary contractual debts. Instead, they serve to compensate consumers. The  Supreme Court held that the NCDRC rightfully imposed penalties on the Appellant for failing to comply with consumer protection laws, reinforcing that these penalties serve a regulatory function rather than constituting debt recovery proceedings.

Additionally, the Court distinguished between proceedings under Section 138 of the Negotiable Instruments Act, 1881, and Section 27 of the CP Act. Under the Negotiable Instruments Act, the presumption of debt is inherent, whereas Section 27 of the CP Act is remedial rather than criminal.

CONCLUSION:

This landmark judgment by the Supreme Court strengthens consumer rights and ensures that insolvency proceedings cannot be misused. By distinguishing between financial debts and regulatory penalties, the Court has provided clarity on the scope of the IBC’s moratorium provisions.

This judgment reaffirms regulatory penalties which are distinct from debt recovery proceedings and do not fall under the protective shield of the IBC’s moratorium. This decision ensures that consumer protection laws remain effective, even in cases where insolvency proceedings are pending.

The views and opinions expressed in this Article are those of the author(s) alone and meant to provide the readers with understanding of the judgment passed in Saranga Anil Kumar Aggarwal v. Bhavesh Dhirajlal Sheth & Ors., 2025 SCC Online SC 493. The contents of the aforesaid Article do not necessarily reflect the official position of Saga Legal. The readers are suggested to obtain specific opinions/advise with respect to their individual case(s) from professional/experts and not to use this Article in place of expert legal advice.

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