Consumer Complaint Against Corporate Debtor Not Maintainable During Insolvency Moratorium: Bombay High Court
Isabella Mariam
The High Court of Judicature at Bombay, Nagpur Bench of Justice M.M. Nerlikar held that a consumer complaint before a District Consumer Disputes Redressal Commission is not maintainable once the insolvency proceedings of a corporate debtor have been admitted and a moratorium is in effect under the Insolvency and Bankruptcy Code, 2016. The Court was hearing a petition challenging the Commission’s order directing a non-banking financial company to return a financed JCB machine to a consumer. Quashing the impugned order and subsequent recovery actions, the Court clarified that such proceedings cannot continue during the subsistence of the moratorium.
The petitioner, Srei Equipment Finance Limited, a non-banking financial corporation with its registered office in Kolkata and branch in Nagpur, approached the High Court challenging two orders of the District Consumer Dispute Redressal Commission, Akola. The first order, dated July 20, 2022, directed the return of a JCB machine to respondent Rajesh Bajirao Khandewar, while the second, dated June 19, 2024, issued bailable warrants against the company’s owner and Chief Executive Officer.
The case arose after respondent no.1 filed a complaint before the District Consumer Commission, Akola, alleging that the company had wrongfully repossessed his JCB machine on the ground of non-payment of instalments. The machine had been purchased after availing finance from the company. It was not disputed that the Reserve Bank of India had, on October 4, 2021, superseded the company’s Board of Directors and initiated insolvency proceedings before the National Company Law Tribunal (NCLT), Kolkata, under Section 7 of the IBC. By an order dated October 8, 2021, the NCLT admitted the application and declared a moratorium under Section 14 of the Code. Later, on August 11, 2023, the NCLT approved a resolution plan for the company under Section 31(1) of the Code.
The petitioner contended that the complaint before the Consumer Commission was filed after the declaration of moratorium and that it was neither a party to the original consumer complaint nor bound by the impugned orders. It was submitted that the proceedings before the Consumer Commission were contrary to the IBC and hence unenforceable. The petitioner further submitted that following the NCLT’s order, a new management had taken control of the company, rendering any recovery proceedings or enforcement actions against the prior management untenable.
On the other hand, the respondents argued that the petition lacked merit and that the absence of the company as a party in the consumer proceedings did not render the case void. The respondents maintained that their grievance concerned the wrongful repossession of the JCB machine and was therefore within the jurisdiction of the Consumer Commission. It was submitted that the proceedings before the Commission were intended to secure possession and not to recover monetary relief, and thus did not violate the moratorium under the IBC. The respondent further claimed to have paid around Rs.13,50,000 towards loan instalments and alleged that the machine had been confiscated illegally by the company’s employees.
The Court examined the relevant provisions of Sections 14 and 31 of the Insolvency and Bankruptcy Code and noted that once a moratorium is declared, “the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority shall be prohibited.” Justice Nerlikar observed that Section 31 further clarifies that once a resolution plan is approved by the adjudicating authority, it “shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors, and other stakeholders involved in the resolution plan.”
The Court recorded that the NCLT, while approving the resolution plan, had held that “on the date of approval of the resolution plan by the Adjudicating Authority, all such claims which are not a part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan.” Justice Nerlikar observed that in view of these statutory provisions, any proceedings in the nature of recovery or enforcement could not be maintained once the moratorium had been declared.
The Court stated, “It is undisputed that the company has not been added as a party to the complaint/application made before the District Consumer Commission, Akola, and therefore, the said order cannot have a binding effect on the company. In view of declaration of moratorium, as well as approval of the resolution plan by the NCLT, the impugned order dated 20.07.2022 is bad in law, so far as the petitioner company is concerned.”
The Court found that allowing the continuation of the consumer proceedings would “render the initiation of proceedings under the I.B. Code redundant and the object of the I.B. Code would be frustrated.” While acknowledging that the respondent was a victim who had paid substantial instalments and lost possession of the machine, the Court held that “law does not permit the respondent to lodge or institute any proceedings against the petitioner company.”
“The complaint cannot be treated as one confined to deficiency in service, as the Commission directed return of the JCB machine upon payment of dues, which is as good as a monetary decree falling within the definition of ‘property’ under Section 3(27) of the I.B. Code.” Therefore, the Court held that the proceedings were barred under Section 14 of the Code.
It stated that “the order dated 20.07.2022 is non-est in law” and proceeded to quash the relevant consumer proceedings. “Criminal Writ Petition is allowed in terms of prayer clauses (a), (c), and (d).” Accordingly, the Court quashed and set aside the order dated July 20, 2022, passed by the District Consumer Redressal Commission, Akola, in Consumer Complaint No.312/21. It also quashed the recovery proceedings bearing R.P. No.6/2023 pending before the same Commission. Further, the Court quashed and set aside the order dated June 19, 2024, which had issued bailable warrants against the owner and Chief Executive Officer of the petitioner company, and directed that the warrants be cancelled.
The Court made the rule absolute in the aforesaid terms.
Advocates Representing the Parties:
For the Petitioner: Mr. A.S. Naik, Senior Advocate, with Shri A.S. Manohar, Advocate.
For the Respondents: Mr. A.B. Mirza, Advocate.
Case Title: Srei Equipment Finance Limited vs. Rajesh Bajirao Khandewar and Others
Neutral Citation: 2025: BHC-NAG:11220
Case Number: Criminal Writ Petition No. 41 of 2025
Bench: Justice M.M. Nerlikar
