Consumer Protection Act, 1986 – s.27 – Insolvency and Bankruptcy Code, 2016 – s.96 – The NCDRC imposed multiple penalties on the appellant for failing to deliver possession of residential units to home-buyers as per the agreed timeline – The appellant sought a stay on the penalty proceedings before the NCDRC, contending that an application u/s.95 of the IBC has been filed against them, triggering an interim moratorium u/s.96 of the IBC – The NCDRC vide the impugned order dated 07.02.2024 rejected this application, holding that consumer claims and the penalty imposed did not fall within the moratorium under the IBC – Correctness:
Held: 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 s.79(15) of the IBC, they do not get the benefit of the moratorium u/s.96 of the IBC, and their enforcement remains unaffected by the initiation of insolvency proceedings – 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 u/s. 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. [Paras 33, 35]
Consumer Protection Act, 1986 – s.27 – Negotiable Instruments Act, 1881 – s.138 – Distinction between proceedings u/s.138 of NI Act and s.27 of the CP Act:
Held: There is distinction between proceedings u/s.138 of the NI Act and those u/s.27 of the CP Act – Proceedings u/s.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, s.27 of the CP Act deals with non-compliance with consumer protection orders, which are remedial in nature rather than criminal – The primary focus of proceedings u/s.27 of the CP Act is to enforce consumer rights and ensure that service providers fulfil their obligations – These proceedings do not assume the existence of a financial debt but rather deal with deficiencies in service and the failure to comply with consumer redressal mechanisms – Thus, the analogy drawn by the appellant between the moratorium on s.138, NI Act proceedings and s.27, CP Act proceedings is misconceived and legally untenable. [Para 36]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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