In the landmark case of Saranga Anilkumar Aggarwal v Bhavesh Dhirajlal Sheth and Ors, the Supreme Court held that insolvency proceedings under section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC), cannot stay penalty actions under the Consumer Protection Act, 1986 (CPA). An interim-moratorium in force under section 96 of the IBC does not prevent the enforcement of penalties under section 27 of the CPA.
Many homebuyers levelled complaints against the real estate developer appellant about delayed possession and unsatisfactory services. The National Consumer Disputes Redressal Commission (NCDRC) directed the developer to complete construction and compensate the complainants. In unrelated proceedings, a bank initiated insolvency proceedings under section 95 of the IBC against the appellant, the personal guarantor of a loan, triggering an interim-moratorium under section 96 of the IBC.
The complainants brought proceedings to enforce the order of the NCDRC. The appellant sought a stay, citing the interim-moratorium. The NCDRC rejected this application, leading the appellant to appeal to the Supreme Court.
The court ruled that, unless expressly included by statute, the enforcement of penalties falls outside the scope of the interim-moratorium under section 96 of the IBC. This is particularly so for consumer protection laws. The judgment drew a clear line between debt recovery and penal enforcement, pointing out the legislative intent to treat personal debt differently from corporate insolvency. Certain obligations, especially those dealing with public interest or consumer rights, are intentionally excluded from the protection of personal insolvency moratoriums.
In State Bank of India v V Ramakrishnan, the Supreme Court analysed the scope of various moratoriums under the IBC. Sections 96 and 101 impose a stay on proceedings related to the debt itself, while section 14 stays proceedings against the debtor. This reflects the policy intent of the IBC. Corporate moratoriums are meant to facilitate revival through resolution, whereas individual moratoriums primarily aim to resolve debts. The court observed that the protections under sections 96 and 101 are far greater than those under section 14, but held that such protections do not extend to excluded debt.
In Saranga Anilkumar Aggarwal, the Supreme Court found that a section 96 interim-moratorium does not apply to excluded debt as defined in section 79(15). This includes court-imposed fines, student loans and claims for damages. Although the interim-moratorium stays civil recovery actions, it does not automatically apply to criminal or regulatory penalties, unless expressly provided. Penalties under section 27 of the CPA are regulatory and punitive, designed to enforce compliance rather than enable debt resolution. They therefore fall within the category of excluded debt and are not stayed by the interim-moratorium.
Saranga Anilkumar Aggarwal is a departure from the court’s earlier position in Ramakrishnan that the protections under sections 96 and 101 of the IBC were broader than those under section 14. The court now holds that the section 14 corporate moratorium is “much broader in scope”. This reinterpretation aligns more accurately with the statutory framework, particularly in light of the definition of excluded debt, which Ramakrishnan did not address.
Saranga Anilkumar Aggarwal reinforces the principle that personal insolvency moratoriums cannot stay regulatory penalties. This will now apply to regimes under similar statutes, such as the Central Goods and Services Tax Act, 2017, the Companies Act, 2013, and the Foreign Exchange Management Act, 1999.
The decision adds to a growing body of Supreme Court jurisprudence upholding homebuyer remedies. Pioneer Urban Land and Infrastructure Limited v Union of India allowed concurrent remedies under the Real Estate (Regulation and Development) Act, 2016, the IBC, and the CPA. M Hemalathi Devi and Ors v B Udayasri held that arbitration clauses cannot prevent access to consumer forums.
By holding that insolvency proceedings cannot stay the enforcement of CPA penalties, the Supreme Court has strengthened homebuyer legal protections. It shows an intention to hold real estate developers accountable, ensuring timely delivery and redress, and raising consumer confidence in the regulatory system.
Bharucha & Partners – Ambar Bhushan and Aaryan Goyal
