Insolvency Code Takes Precedence Over SEBI Act in Corporate Debt Recovery, Tribunal Rules in Favor of IBC Primacy.

The Tribunal determined that Sections 14 and 238 of the IBC 2016 override Section 28A of the SEBI Act when a Corporate Insolvency Resolution Process (CIRP) is initiated. SEBI's applications for modification were dismissed, affirming IBC's primacy over SEBI in recovery proceedings against the Corporate Debtor. SEBI can still act against directors and management for fraudulent acts. The Tribunal advised SEBI's Recovery Officer to collaborate with the Resolution Professional and participate in Committee of Creditors (CoC) meetings as an observer to expedite resolution, thereby ensuring investor protection within the IBC framework.

---

---

Issues Involved:
1. Whether Section 14 and 238 of IBC 2016 have an overriding effect on the provision of Section 28A of SEBI Act.

Detailed Analysis:

Issue: Whether Section 14 and 238 of IBC 2016 have an overriding effect on the provision of Section 28A of SEBI Act.

Background and SEBI's Contentions:
The Securities and Exchange Board of India (SEBI) initiated recovery proceedings under Section 28A of the SEBI Act against Kerala Housing Finance Limited (Corporate Debtor) for non-compliance with the public issue norms, directing the refund of monies collected from investors. SEBI's final order was upheld by the Securities Appellate Tribunal (SAT), and recovery proceedings were initiated due to non-compliance by the Corporate Debtor and its directors. SEBI contended that:
- SEBI performs executive, quasi-judicial, and legislative functions under its regulatory framework.
- The recovery proceedings were initiated to protect investors who subscribed to securities issued by the Corporate Debtor without complying with legal formalities.
- The Tribunal lacks jurisdiction to issue orders conflicting with SEBI, a statutory authority under an independent Central Legislation.
- Investors who subscribed to the securities cannot be termed as "financial creditors" or "operational creditors" under IBC.
- SEBI Act deals with investor protection issues, not creditor and debtor issues, and is not overridden by IBC provisions.

Resolution Professional's (RP) Contentions:
The Resolution Professional argued that:
- The interlocutory application by SEBI is not maintainable in law or facts.
- Non-convertible debentures issued by the Corporate Debtor fall within the definition of "financial debt" under Section 5(8) of IBC.
- Section 238 of IBC, with its non-obstante clause, overrides Section 28A of SEBI Act, as affirmed by the Supreme Court in Innoventive Industries vs. ICICI Bank.
- Section 14(1)(a) of IBC prohibits the institution or continuation of suits or proceedings against the Corporate Debtor during the moratorium period.

Findings and Judgment:
The Tribunal examined the provisions of Section 28A of SEBI Act and Section 14(1)(a) and 238 of IBC, considering the judgments and arguments presented by both parties. The Tribunal noted:
- IBC, enacted in 2016, is a complete code with the objective of maximizing the value of assets and balancing the interests of all stakeholders in a time-bound manner.
- SEBI's primary objective is to protect investors and regulate the securities market.
- The Supreme Court's judgment in Innoventive Industries emphasized the primacy of IBC over other Acts, including SEBI Act.
- NCLAT's judgment in Bohar Singh Dhillon vs. Mr. Roghit Sehgal reinforced that SEBI cannot recover any amount or sell assets of the Corporate Debtor during the moratorium period.

The Tribunal concluded that Sections 14 and 238 of IBC have an overriding effect on Section 28A of SEBI Act when an application is admitted under CIRP. The Tribunal suggested SEBI's Recovery Officer cooperate with the Resolution Professional to protect investors' interests and find a quicker resolution. The Tribunal dismissed SEBI's applications for modification of the earlier order.

Order:
1. Sections 14 and 238 of IBC 2016 have an overriding effect on Section 28A of SEBI Act.
2. SEBI is not barred from taking action against the directors, shareholders, and key management personnel of the Corporate Debtor for fraudulent acts.
3. SEBI's Recovery Officer should cooperate with the Resolution Professional and participate in CoC meetings as an observer for a quicker resolution.

Conclusion:
The Tribunal dismissed the interlocutory applications filed by SEBI, affirming the primacy of IBC provisions over SEBI Act in the context of recovery proceedings against the Corporate Debtor.

---