HC bars consumer plaints against companies under IBC moratorium

Nagpur: In an important judgment reinforcing the supremacy of the Insolvency and Bankruptcy Code (IBC), the Nagpur bench of Bombay High Court recently ruled that consumer complaints involving the recovery of property cannot proceed against companies under moratorium during the Corporate Insolvency Resolution Process (CIRP).

The court set aside orders passed by the District Consumer Dispute Redressal Commission, Akola, including bailable warrants issued against the CEO and owner of a Nagpur-based finance firm.Delivering the verdict, Justice MM Nerlikar held that once insolvency proceedings begin, all recovery actions must stop. "Once the moratorium is declared or applied or the resolution plan is approved, proceedings which are in the nature of recovery cannot be maintained in any court of law, tribunal, arbitration panel or any other authority," the court stated, underlining the protection extended by the IBC.The case stemmed from a complaint by a customer who alleged that the company repossessed his JCB machine despite timely payment of instalments. The consumer panel directed company officials to return the equipment, effectively treating the machine as recoverable property. However, the petitioner firm, now under management approved by the National Company Law Tribunal (NCLT), argued that such directions violated the moratorium under Section 14 and the approved resolution plan under Section 31 of the IBC.

"The object of the IBC would be frustrated if such proceedings were permitted," Justice Nerlikar observed, adding that the petitioner firm was not even made a party to the original consumer case. "It is undisputed that the petitioner firm has not been added as a party to the complaint made before the District Consumer Commission. Therefore, naturally, the said order cannot have a binding effect on the company," the court ruled.Senior counsel Akshay Naik, representing the petitioner, argued that enforcement of consumer orders against a firm under insolvency "would render the entire process under IBC redundant". Counsel for the respondent, AB Mirza, contended that the complaint merely alleged a deficiency in service. The court disagreed, clarifying that the Commission's order to return the JCB machine amounted to a monetary decree, which fell within the definition of "property" under Section 3(27) of IBC.Allowing the writ petition, the HC quashed the consumer complaint order dated July 20, 2022, related proceedings, and the bailable warrants issued against the company's top executives on June 19, 2024.# Key takeaways from HC verdict- Orders issued without making the corporate debtor a party are not binding- Moratorium under Section 14 bars continuation or initiation of recovery proceedings- Resolution plan approval under Section 31 is binding on the company, employees, and stakeholders- Monetary recovery claims during CIRP are covered under the definition of 'property' in IBC- Bailable warrants issued against company executives under such circumstances are illegal- Emphasised preserving the objectives of IBC and the role of NCLT-sanctioned management- Deficiencies in service claims are maintainable only if they do not involve recovery of property- Clarified that enforcement of consumer orders post-moratorium would frustrate IBC