2021 (1) TMI 995 - AT - SEBI

SEBI's Penalty Overturned: Resolution Plan Supremacy Emphasized

The Tribunal held that the SEBI's penalty imposition was against the NCLT-approved resolution plan, extinguishing all liabilities. The penalty order was ... Levy of penalty for Non disclosures as required under the LODR Regulations - appellant had issued non-convertible debenture securities - CIRP proceedings were ongoing - penalty imposed for violating Regulations 52(4) and 54(2) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ( 'LODR Regulations, 2015' - whether the impugned order imposing penalty upon the appellant for alleged contravention during the period prior to the approval of the resolution plan could be passed by the adjudicating officer? - HELD THAT:- In clear terms of the resolution plan, the show cause notice could not be issued to the appellant for the alleged contravention relating to the period prior to the acquisition and, consequently, the impugned order could not be passed against the appellant. What could not done by SEBI when the moratorium under section 14(1) of the IBC was in force cannot certainly be done after a resolution plan is approved and becomes binding on all creditors including government and local authority under section 31 of the IBC. We are of the opinion that once a resolution plan has been approved it becomes binding on all creditors including the government and local authorities including the respondent under section 31(1) of the IBC. It is no longer open to the respondent to issue a show cause notice or adjudicate and pass an order of penalty upon the appellant. Consequently, the impugned order cannot be sustained and is quashed. The appeal is accordingly allowed with no order as to costs. Issues Involved:1. Imposition of penalty for violating SEBI regulations.2. Applicability of the resolution plan approved by NCLT.3. Jurisdiction and authority of the adjudicating officer post-approval of the resolution plan.Detailed Analysis:1. Imposition of Penalty for Violating SEBI Regulations:The appellant was penalized Rs. 6,00,000 for violating Regulations 52(4) and 54(2) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 during 2013-2014. The appellant contended that the financial liabilities, including penalties, were extinguished by the NCLT-approved resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC).2. Applicability of the Resolution Plan Approved by NCLT:The resolution plan approved by NCLT on 24th July 2018, and the subsequent acquisition by a consortium, extinguished all financial liabilities and obligations of the appellant related to the period before the acquisition. The resolution plan explicitly stated that all liabilities, including penalties, fines, and fees, would be deemed permanently extinguished. The Supreme Court in the case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta emphasized that a successful resolution applicant should not face any undecided claims post-approval of the resolution plan, ensuring the business is taken over on a 'fresh slate.'3. Jurisdiction and Authority of the Adjudicating Officer Post-Approval of the Resolution Plan:The adjudicating officer failed to consider whether proceedings could be initiated against the appellant post-approval of the resolution plan. The officer's role under the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, was limited to adjudging the alleged violation without addressing the implications of the NCLT-approved resolution plan. The Tribunal highlighted that once the resolution plan is approved, it becomes binding on all creditors, including government and local authorities, under section 31(1) of the IBC. Therefore, the SEBI could not issue a show cause notice or impose a penalty on the appellant for actions predating the acquisition.Conclusion:The Tribunal concluded that the SEBI's actions were contrary to the binding resolution plan approved by the NCLT. The impugned order imposing the penalty was quashed, and the appeal was allowed with no order as to costs. The Tribunal also criticized the adjudicating officer's failure to address the binding nature of the resolution plan, indicating a lack of clarity and quasi-judicial thought in the decision-making process. The Chairman of SEBI was advised to issue appropriate directions to the adjudicating officer on the administrative side.Additional Observations:The Tribunal noted that the hearing was conducted via video conference due to the Covid-19 pandemic, and the order would be digitally signed and communicated to the concerned parties electronically.