2020 (10) TMI 1332 - AT - SEBI

IBC Section 14: Moratorium Halts Proceedings; Tribunal Quashes Penalty Order

The Tribunal held that under Section 14 of the IBC, the institution or continuation of proceedings against the corporate debtor is prohibited once a ... Non- compliance of the provisions of Regulation 16(1) of Securities and Exchange Board of India (Issue of Listing of Debenture Securities) Regulations, 2008 - Penalty on the appellant imposed under section 15A(b) and 15HB of the SEBI Act - Appellant is a housing finance company, and at present, is undergoing corporate insolvency resolution process - HELD THAT:- As the adjudicating authority by order declare moratorium for prohibiting the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement or order in any court of law, tribunal, arbitration panel or other authority. In our view, the provision is clear and explicit and needs no further elaboration. Pursuant to a moratorium declared under section 14 the institution of suits or proceedings against the corporate debtor is prohibited or continuation of a suit or proceedings. Further, execution of any judgement or order in any court of law, tribunal, arbitration panel or other authority is also prohibited. Thus, where a moratorium has been declared under section 14 of IBC, the authority which in the instant case is SEBI/AO will have no jurisdiction to institute any proceedings. Where a proceeding has already been instituted and during the pendency of the proceedings a moratorium order is passed under section 14 then the authority is prohibited from continuing with the proceedings. This is clear from a bare reading of the provisions of section 14(1) of the IBC. The contention of the respondent that the word 'proceedings' depicted in section 14(1) has to be given an expansive meaning cannot be considered either by the adjudicating officer as it would amount to contempt of court. In any case, the prohibition is on the institution of a proceeding. In the instant case, the moratorium kicked in when the petition was filed on November, 2019 under Rule 5(a)(i) of the Insolvency and Bankruptcy (Insolvency and liquidation proceedings of financial service provider and application to Adjudicating Authority) Rules, 2019 and thereafter it was admitted on 3rd December, 2019. The adjudicating officer issued notice subsequently on 24th December, 2019. It is quite clear that the proceedings was initiated by the adjudicating officer after the moratorium had come into effect. In our view no proceedings could be instituted in view of section 14(1) of the Act. We are also of the opinion that external aid can only be considered when there is an ambiguity in the provision. In this regard, the provision of section 14 is very clear and explicit and there is no room for any ambiguity. Further, the Supreme Court has categorically explained the effect of section 14 of the IBC. We, therefore, find that the adjudicating officer could not have considered the report of the insolvency committee to come to the conclusion that he had the power to proceed under SEBI law inspite of a moratorium having come into effect under section 14 of the IBC. For the reasons stated aforesaid, the impugned order imposing a penalty and proceeding to recover under section 28A of the Act upon failure to pay cannot be sustained and is quashed. Since the proceedings could not be instituted, we also quash the show cause notice and the entire proceedings. The appeal is allowed. Issues Involved:1. Legality and validity of the SEBI Adjudicating Officer's order imposing a penalty.2. Applicability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) on SEBI proceedings.3. Interpretation of the term 'proceedings' under Section 14(1)(a) of the IBC.4. Use of external aids in interpreting Section 14 of the IBC.Detailed Analysis:1. Legality and Validity of SEBI's Order:The appeal questioned the legality and validity of the SEBI Adjudicating Officer's order dated 29th May 2020, which imposed a penalty of Rs. 20 lakhs on the appellant under Section 15A(b) and 15HB of the SEBI Act. The order directed the appellant to pay the amount within 45 days, failing which recovery proceedings would be initiated under Section 28A of the SEBI Act.2. Applicability of Moratorium under Section 14 of the IBC:The appellant, a housing finance company undergoing corporate insolvency resolution, argued that the moratorium under Section 14 of the IBC prohibited the initiation or continuation of proceedings against the corporate debtor. The appellant cited Supreme Court decisions to support the claim that no proceedings could be instituted or continued during the moratorium period.3. Interpretation of 'Proceedings' under Section 14(1)(a) of the IBC:The adjudicating officer contended that the moratorium under Section 14 of the IBC did not prevent the determination of liability but only the enforcement/recovery of the determined liability. The officer relied on the Insolvency Law Committee's observations, which differentiated between assessing liability and recovering it. The officer concluded that the proceedings to determine liability for non-compliance with ILDS and LODR Regulations could continue despite the moratorium.4. Use of External Aids in Interpreting Section 14 of the IBC:The appellant argued that the adjudicating officer's reliance on the Insolvency Law Committee's report to interpret Section 14 of the IBC was erroneous and amounted to contempt of the Supreme Court's decisions. The appellant maintained that the provision was clear and explicit, requiring no external aid for interpretation.Judgment Summary:Applicability of Moratorium:The Tribunal held that under Section 14 of the IBC, the institution or continuation of proceedings against the corporate debtor is prohibited once a moratorium is declared. This includes the execution of any judgment or order by any court, tribunal, arbitration panel, or authority. The provision is clear and explicit, prohibiting SEBI from initiating or continuing proceedings against the corporate debtor during the moratorium.Supreme Court Precedents:The Tribunal referenced Supreme Court cases, including Alchemist Asset Reconstruction Company Ltd. vs. Hotel Gaudavan Pvt. Ltd. & Ors. and Rajendra K. Bhuta vs. Maharashtra Housing and Area Development Authority, which affirmed that the moratorium under Section 14(1)(a) prohibits the institution or continuation of proceedings against the corporate debtor.External Aid in Interpretation:The Tribunal found that the adjudicating officer's reliance on the Insolvency Law Committee's report was inappropriate, as the provision of Section 14 is unambiguous and does not require external aid for interpretation. The Supreme Court's interpretation of Section 14 should have been followed.Conclusion:The Tribunal quashed the impugned order imposing the penalty and the subsequent recovery proceedings under Section 28A of the SEBI Act. It also quashed the show cause notice and the entire proceedings initiated by the adjudicating officer, concluding that no proceedings could be instituted once the moratorium under Section 14 of the IBC had come into effect.The appeal was allowed, and the order was digitally signed due to the Covid-19 pandemic, directing all concerned parties to act on the digitally signed copy.