Would a moratorium imposed under IBC bar Consumer Court proceedings against erstwhile company directors? Supreme Court to examine

The Supreme Court on Thursday issued notice in an appeal which questions whether a moratorium imposed on a company under the Insolvency and Bankruptcy Code (IBC) would bar further proceedings under Section 27 of the Consumer Protection Act (dealing with penalties for non-compliance). .The Punjab and Haryana High Court had earlier ruled against the appellants, who are the erstwhile directors of a construction company undergoing insolvency proceedings. The High Court had dismissed a writ petition moved by the appellants with costs on finding that they have an alternate remedy before the national consumer forum. .A Supreme Court Bench led by Justice Rohinton Fali Nariman today issued notice the appeal challenging this ruling and stayed the High Court judgment. .Senior Advocate KV Vishwanathan and Advocate Abhimanyu Bhandari, instructed by Advocates Roohehina Dua (AoR), Sangram Saron and Cheitanya Mandan appeared for the appellants. .The appellants have raised the following question of law i.e. whether the proceedings under Section 27 of the Consumer Protection Act against the erstwhile directors of a company can continue even after the declaration of a moratorium under Section 14 of the IBC?.Section 27 of the Consumer Protection Act empowers Consumer Dispute Redressal Commissions to penalize a person who fails or omits to comply with an order passed by the Dispute Redressal Commission, upon a complaint being made. .The appellants have contended that the continuation of proceedings under Section 27 of the CP Act during the CIRP process defeats the very purpose of IBC. ."... the continuation of proceedings under Section 27 of the CP Act during the CIRP process defeats the very purpose of the Code, inasmuch, as approval of a resolution plan would automatically entail settlement of the dues of the creditor who has initiated the said proceedings and the continuation of such proceedings alongside CIRP would serve no real purpose. Moreover, the Execution proceedings under the Consumer Protection Act are likely to impede and hamper the resolution process, which is initiated pursuant to the declaration of a moratorium.".The appellants' case.The appellants, in this case, were directors of a construction company, against whom a consumer complaint was filed for the recovery of money paid after the company's failure to hand over the possession of a unit allotted in favour of the complainants. The consumer court allowed the complaint and execution proceedings were commenced in respect of the same as well. The complainants also moved an application invoking Section 27 of the Consumer Protection Act. .Non-bailable warrants were also issued against the appellants, when another person moved the National Company Law Tribunal (NCLT) to initiate corporate insolvency proceedings against the appellants. .The NCLT, in turn, imposed a moratorium on the company under Section 13, IBC which meant that "institution of suits or continuation of pending suits or proceedings against the corporate debtor" were barred, as per Section 14, IBC..In view of Section 14, IBC, it is the appellant's case that once a moratorium is declared with respect to a company undergoing insolvency, consumer courts would also no longer have the jurisdiction to entertain any action or proceeding against a corporate debtor. .In support of this stance, the appellant has raised the following contentions:On a declaration of a moratorium, a Corporate Debtor is insulated from all types of proceedings (including those under Section 27 of the Consumer Protection Act) that are sought to be instituted or continued against itThe bar on continuation of pending suits, proceedings etc. against a corporate debtor (in respect of whom a moratorium has been imposed) would cover not only judgments but also the execution of judgments/orders/decrees. Proceedings under section 27 of the Consumer Protection Act are actually compensatory in nature. The punitive element is only aimed at enforcing the compensatory element. Thus, it is clear that the intention of any complainant under the Act is to recover their dues and the threat of imprisonment is only meant to aid such recovery.Such proceedings for the recovery of a debt under Section 27, Consumer Protection Act is likely to impede and hamper the corporate insolvency resolution process.The issue raised is similar to the case of P. Mohanraj & Ors. Versus M/s Shah Brothers Ispat Pvt. Ltd. which was pending before the Supreme Court when the High Court dismissed the appellants' case. The High Court ought to have waited for the Supreme Court to give its ruling before dismissing the appellants' writ petitions. The State Commission's continuation of proceedings against the appellants under Section 27 of the Consumer Protection Act is wholly without jurisdiction.The Supreme Court, in a catena of judgments including Whirpool Corporation Vs. Registrar of Trademarks Mumbai and others and Maharashtra Chess Association Vs. Union of India has held that an alternative remedy is not a bar to maintain a writ petition against an order which has been passed wholly without jurisdictionAllowing proceedings under Section 27, Consumer Protection Act to continue unabated would utterly defeat the purpose of the moratorium. It is also noted that under the IBC, ‘Financial Creditors’ are given higher priority over ‘Operational Creditors’ upon the liquidation of the corporate bebtor under the Code. As such, permitting ‘Operational Creditors’ to institute and continue proceedings under Section 27 of the Consumer Protection Act would allow them to circumvent the priority list envisaged under Section 53, IBC, thereby rendering the working of the Code redundant.Reference is further made to Section 238 of the IBC, which lays down that the provisions of this Code to override other laws..This apart, the appellants' have also raised objection to certain disparagin observations made by the High Court wherein they were accused of indulging in forum shopping. The appellants' have termed these remarks as erroneous, inappropriate, contrary to law and unnecessary for the disposal of the case.