The Supreme Court on Tuesday ruled that real estate developers do not enjoy immunity from consumer protection laws for failing to hand over homebuyers the promised possession of houses, even if the former is facing insolvency proceedings.

The ruling is bound to make lakhs of homebuyers — who are often at the receiving end of unreliable realtors —happy.

“If damages arising from legal violations, consumer protection claims, or penalties imposed by courts and tribunals were to be shielded under the moratorium, it would create an unfair advantage for errant entities and individuals, allowing them to evade their legal obligations under the guise of insolvency.

“The Insolvency and Bankruptcy Code (IBC) being a special law meant to balance the interests of all stakeholders, does not intend to provide relief to those who have been held liable for statutory breaches or misconduct,” a bench of Justice Vikram Nath and Prasanna B Varale said.

“Allowing the stay of such penalties would effectively enable businesses to flout consumer protection mandates by merely initiating insolvency proceedings, which would be an unintended and dangerous consequence of a misinterpretation of the law,” it added.

The Apex court passed the ruling while dismissing an appeal filed by a real estate company challenging the order passed by the National Consumer Disputes Redressal Commission (NCDRC) by which it had imposed multiple penalties (27 in total) on the appellant Saranga Anil Kumar Aggarwal proprietor of East & West Builders (RNA Corp. Group Co.).

The NCDRC had imposed several penalties on the ground that the homebuyers were not given the promised possession of the houses within the timeline assured by the builder.

The appellant had argued that the NCDRC order cannot be enforced since an insolvency proceedings had been initiated against his company before the National Company Law Tribunal (NCLT). It was contended that in terms of section 96 of the IBC Code, there is a moratorium on all legal proceedings relating to the corporate debtor. According to Section 96 “… any legal action or proceedings relating to any debt shall be deemed to have been stayed.”

Dismissing the Appeal, Justice Vikram Nath who authored the judgment observed, “If the appellant’s argument is accepted, homebuyers, who have already suffered immense delays and financial hardship, would be further deprived of relief. “

The Apex court said the legislative intent behind consumer protection laws is to safeguard the interests of consumers and ensure accountability from service providers.

“Permitting a stay on regulatory penalties under the guise of insolvency proceedings would undermine the very purpose of the CP (Consumer Protection) Act and embolden errant developers to escape liability through insolvency proceedings,” the bench said before adding how homebuyers, many of whom invest their life savings in purchasing residential units, are in a precarious position due to delays in possession and breaches of contractual obligations.