Consumer Proceedings Initiated During IBC Moratorium Held Void: Bombay High Court Quashes Orders Passed Against Corporate Debtor
- REEDLAW
- Nov 13
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the Bombay High Court clarified that once a moratorium under Section 14 of the Insolvency and Bankruptcy Code is in effect, and a resolution plan is subsequently approved under Section 31, any consumer proceedings or recovery actions initiated or continued against the Corporate Debtor stand void and unenforceable. The Court reaffirmed that the moratorium serves as a statutory shield ensuring that no parallel proceedings interfere with the resolution process or the implementation of an approved plan.
The Bombay High Court, Single-Judge Bench comprising Justice M.M. Nerlikar, while adjudicating a Criminal Writ Petition, held that once a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, is in force, and a resolution plan is duly approved under Section 31, any consumer or recovery proceedings initiated or continued against the Corporate Debtor are void and legally unenforceable. The Court observed that such proceedings undermine the legislative intent of the Code, which mandates that all actions against the Corporate Debtor must cease upon declaration of moratorium to preserve the integrity of the resolution process.
The Petitioner, a company registered under the Companies Act, had challenged the orders passed by the District Consumer Dispute Redressal Commission, Akola, which had directed the return of a JCB machine to the Respondent and had subsequently issued bailable warrants against the owner and Chief Executive Officer of the Petitioner company. The Petitioner contended that the impugned order dated 20 July 2022 was passed during the subsistence of a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), as the National Company Law Tribunal (NCLT), Kolkata Bench, had already admitted an insolvency petition against the company on 8 October 2021 and approved a resolution plan on 11 August 2023. It was submitted that the Consumer Commission’s order was unenforceable and without jurisdiction, as the proceedings had been initiated and continued during the period when the moratorium was in effect, and the Petitioner company was not even made a party to the consumer complaint.
The Petitioner further argued that the complaint before the District Consumer Commission, filed on 26 October 2021 by the Respondent, sought recovery and repossession of the JCB machine, which amounted to enforcement of a monetary claim in violation of Section 14 of the IBC. The Petitioner submitted that, once the resolution plan was approved by the NCLT, all pre-existing claims not forming part of the plan stood extinguished under Section 31(1) of the IBC. Therefore, any further action, including the issuance of bailable warrants by the Consumer Commission, was contrary to law and liable to be quashed.
In response, the Respondent argued that the petition lacked merit and that the complaint before the Consumer Commission was maintainable even during the moratorium, as it pertained to a deficiency of service rather than a recovery of dues. It was contended that the Petitioner’s employees had wrongfully repossessed the JCB machine despite the Respondent having paid substantial instalments, and therefore, the Respondent was entitled to relief under the Consumer Protection Act, 2019.
After considering the rival submissions and examining the record, the Court noted that the Consumer Commission had passed its order after the moratorium had come into force and that the Petitioner company was not a party to the proceedings. The Court observed that under Sections 14 and 31 of the IBC, once a moratorium is declared and a resolution plan is approved, no proceedings seeking recovery, possession, or execution can be initiated or continued against the Corporate Debtor. The Court held that the Consumer Commission’s order dated 20 July 2022, having been passed during the moratorium, was non est in law and could not bind the Petitioner company or its new management.
The Court further held that the subsequent issuance of bailable warrants against the company’s owner and Chief Executive Officer was also illegal, as the recovery proceedings were themselves barred under the IBC. It emphasised that permitting such parallel consumer proceedings would defeat the object of the IBC and render the moratorium redundant. While acknowledging that the Respondent may have suffered loss due to repossession of the JCB machine, the Court clarified that the law under the IBC does not allow initiation or continuation of any proceeding against a Corporate Debtor once the moratorium is imposed.
Accordingly, the Court allowed the petition and quashed the order dated 20 July 2022 passed by the District Consumer Commission, Akola in Consumer Complaint No. 312/2021, the recovery proceedings in R.P. No. 6/2023, and the order dated 19 June 2024 issuing bailable warrants against the owner and Chief Executive Officer of the Petitioner company, holding that all such proceedings were unenforceable in view of the moratorium and approval of the resolution plan.
Mr. A.S. Naik, Senior Advocate, with Mr. A.S. Manohar, Advocate, represented the Petitioner.
Mr. A.B. Mirza, Advocate, appeared for the Respondents.
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