2023 (8) TMI 1628 - AT - SEBI

Liquidator wins appeal against share freeze despite company liquidation under IBC Section 52

M/s. LML Ltd. Versus Securities and Exchange Board of India and Bombay Stock Exchange Ltd., Mumbai

The Securities Appellate Tribunal Mumbai held that it had jurisdiction to entertain an appeal by a liquidator against BSE's refusal to defreeze shares, ... Freezing of demat account of the Company in the liquidation on account of non-compliance of Regulation 33 of the LODR - SAT jurisdiction to entertain the appeal filed by the liquidator of LML Ltd. against the refusal by BSE to defreeze the shares held - HELD THAT:- In the instant case, the demat account of the Company in the liquidation i.e. the appellant has been frozen on account of non-compliance of Regulation 33 of the LODR which has nothing to do with the insolvency process or liquidation process under IBC. Thus, the appeal was rightly filed by the Liquidator before this Tribunal. We, therefore, hold that in view of the interpretation of Section 60(5) of the IBC and the decision in Gujarat Urja Vikas Nigam Ltd. [2021 (3) TMI 340 - SUPREME COURT] the jurisdiction of this Tribunal is not ousted under Section 60(5)of the IBC. The appeal is maintainable. Company went in liquidation in March, 2018 prior to the suspension of the securities of the VCCL Company which occurred on 26th November, 2018. All subsequent action by SEBI would be in contravention to Section 52 of the IBC and direction (e) of NCLT order dated 23rd March, 2018 as extracted in the earlier part of the order. The impugned communication issued by the respondent no.2 is quashed. The appeal is allowed. The misc. applications are also accordingly disposed of. A direction is given to respondent nos.1 and 2 to defreeze the demat account of the appellant forthwith. The respondents will ensure and pass appropriate orders permitting the Liquidator to sell the shares of VCCL and shares of other listed companies held in its demat account. Such orders will be passed within two weeks. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the Securities Appellate Tribunal (SAT) has jurisdiction to entertain the appeal filed by the liquidator of LML Ltd. against the refusal by BSE to defreeze the shares held by LML Ltd. in VCCL Ltd.Whether the actions taken by SEBI and BSE in freezing the shares and demat accounts of LML Ltd. were in contravention of the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly in light of the liquidation proceedings initiated against LML Ltd.Whether the impugned communication by BSE refusing to defreeze the shares was valid under the applicable legal framework.2. ISSUE-WISE DETAILED ANALYSISJurisdiction of SATRelevant legal framework and precedents: The jurisdictional question revolves around Section 60(5) of the IBC, which grants the National Company Law Tribunal (NCLT) jurisdiction over matters related to insolvency proceedings. The Supreme Court's decision in Gujarat Urja Vikas Nigam Ltd. vs. Amit Gupta and Ors. was also considered, which cautions against NCLT and NCLAT usurping the jurisdiction of other courts.Court's interpretation and reasoning: The Tribunal found that Section 60(5) of the IBC does not completely oust the jurisdiction of other courts or tribunals. The provision is a residuary clause allowing NCLT to deal with matters related to insolvency but does not exclude the jurisdiction of SAT over securities-related issues.Application of law to facts: The Tribunal concluded that the freezing of shares was due to non-compliance with SEBI regulations, which is unrelated to the insolvency process. Therefore, the appeal was rightly filed before SAT.Treatment of competing arguments: SEBI's argument that only NCLT has jurisdiction was rejected, as the issue did not solely relate to insolvency proceedings.Conclusions: The appeal is maintainable before SAT, and the jurisdiction is not ousted under Section 60(5) of the IBC.Validity of SEBI and BSE's ActionsRelevant legal framework and precedents: The actions of SEBI and BSE were governed by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, particularly Regulation 33, and the SEBI SOP circulars.Court's interpretation and reasoning: The Tribunal noted that the liquidation of LML Ltd. commenced before the suspension of VCCL's securities. Thus, actions taken by SEBI and BSE post-liquidation were in contravention of Section 52 of the IBC and the NCLT's moratorium order.Key evidence and findings: The Tribunal found that the shares were frozen due to non-compliance with SEBI regulations, which should not interfere with the liquidation process under IBC.Application of law to facts: The Tribunal concluded that the impugned communication by BSE was invalid as it contravened the IBC provisions and the NCLT's order.Conclusions: The communication by BSE was quashed, and directions were given to defreeze the demat account and allow the liquidator to sell the shares.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The jurisdiction of other Courts or Tribunal is not ousted and that is only a residuary clause allowing NCLT to also deal with the matters in relation to any insolvency resolution or liquidation proceedings.'Core principles established: The Tribunal established that while NCLT has broad jurisdiction under Section 60(5) of the IBC, it does not exclude the jurisdiction of other tribunals like SAT in matters not directly related to insolvency proceedings.Final determinations on each issue: The Tribunal held that the appeal was maintainable, quashed the impugned communication by BSE, and directed the defreezing of the demat account and sale of shares.