Supreme Court Clarifies Scope of Moratorium in IBC: Penalties Still Apply

The Supreme Court ruled that interim moratoriums under the Insolvency and Bankruptcy Code (IBC) do not protect against penalties imposed under consumer protection laws. This decision came in a case involving delayed property possession, emphasizing a distinction between civil debt proceedings and regulatory penalties, which are outside the IBC's scope.

The Supreme Court delivered a crucial judgment on Tuesday, affirming that interim moratoriums under the Insolvency and Bankruptcy Code (IBC) do not protect individuals or companies from regulatory penalties imposed under consumer protection laws.

A bench comprising Justices Vikram Nath and Prasanna B Varale clarified that while a temporary suspension of legal proceedings can occur under Section 96 of the IBC, regulatory penalties imposed by bodies like the NCDRC (National Consumer Disputes Redressal Commission) are not shielded in the same manner.

This ruling arose from a case involving Saranga Anilkumar Aggarwal, who faced insolvency proceedings and aimed to halt execution of penalty orders for delayed possession of residential units. The court emphasized that penalties serve regulatory compliance and are distinct from debt, thus lying outside the ambit of the IBC moratorium.

(With inputs from agencies.)