2020 (10) TMI 332 - Tri - SEBI

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 ... Interpretation of Statute - Whether Section 14 and 238 of IBC 2016 have an overriding effect on the provision of Section 28 of SEBI Act? - HELD THAT:- IBC which is a complete code in itself was enacted in the year 2016 and the law makers after considering the various acts prevailing at that time have framed the IBC to have a faster resolution process at par with developed countries with the primary objective of maximisation of value of assets to all stake holders. The preamble of IBC clearly mentions that the objective of the Code is maximisation of value of assets, to promote entrepreneurship, availability of credit and balance the interest of all stake holders in a time bound manner, whereas the primary object of SEBI is to protect the interest of the investors in securities market and to promote the development to regulate the securities and for matters connected therewith - it is evident that IBC is clearly a time bound action with a wider remit, whereas SEBI was given a broad mandate to protect the interest of investors and the IBC which had brought into force after considering various acts prevailing at that point of time must have also been considered SEBI Act and its implication in the corporate debtor and its operations. Therefore Section 14(1) in IBC which came into force after the enactment of IBC 2016 has precedence over Section 28A of SEBI Act. It is pertinent to go through the judgment of the Hon'ble Supreme Court in Innoventive Industries. Vs. ICICI Bank and others [2017 (9) TMI 58 - SUPREME COURT] where Hon'ble Supreme Court shows the primacy of IBC over other Acts. Thus, the issue framed in the instant application got an overwhelming affirmative answer that Sections 14 and 238 of IBC has an overriding impact on Section 28A of SEBI Act when an application is admitted under CIRP under Section 7, 9 or 10 of IBC - As both the Central Acts are having similar objectives, instead of clinging to over the supremacy of the Act the Recovery Officer appointed by the SEBI under Section 28A may cooperate with the Resolution Professional in protecting the interests of the investors as well as finding a quicker resolution in the instant application. SEBI is suggested to direct their Recovery Officer to cooperate with the Resolution Professional and if required be a part of the CoC as an observer for a quicker resolution and maximisation of the value of the assets of the corporate debtor. Thus, it is concluded that Section 14 and Section 238 of IBC 2016 has an overriding effect on Section 28A of SEBI Act. As such there is no need to modify our earlier order dated 18.9.2019 - SEBI is not barred from taking any action as it may deem fit, against the directors, shareholders and key management personnel of the Corporate Debtor for their fraudulent acts. Application dismissed. 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.