2024 (3) TMI 1183 - HC - SEBI

SEBI recovery certificate upheld as IBC moratorium periods had expired before issuance under Section 28A

Telangana HC upheld SEBI's recovery certificate under Section 28A of SEBI Act against appellants who challenged it citing pending IBC proceedings and ... Interim moratorium under IBC - stay of legal action during moratorium - enforcement of SEBI recovery certificate - inapplicability of Chapter IV of IBC where section 122 not filedInterim moratorium under IBC - stay of legal action during moratorium - enforcement of SEBI recovery certificate - Validity of issuance and enforcement of the impugned recovery certificate by SEBI in light of moratorium provisions of the IBC - HELD THAT: - The Court examined Sections 96 and 101 of the IBC and held that once an application is admitted under Section 100, the moratorium operates in relation to all debts and ceases after 180 days from admission. Applying those provisions to the facts, the moratorium in favour of appellant No.1 ran from 04.02.2022 to 04.08.2022 and in favour of appellant No.2 from 13.12.2022 to 13.06.2023. The writ petition was heard on 19.09.2023, when no moratorium was in force for the appellants. Consequently, respondents No.1 and 2 were justified in issuing the impugned certificate under Section 28A of the SEBI Act and initiating recovery, since no stay of legal proceedings arising from an operative moratorium applied at that time. [Paras 9, 10, 11]The impugned SEBI recovery certificate was validly issued and could be enforced because no interim moratorium under the IBC was in force in favour of the appellants when the certificate was issued.Inapplicability of Chapter IV of IBC where section 122 not filed - Applicability of Chapter IV (Sections 121-124) of the IBC in the circumstances where proceedings under Section 122 had not been initiated at the relevant time - HELD THAT: - The Court noted that Chapter IV of the IBC (Sections 121 to 124) does not apply where an application under Section 122 was not filed when the impugned certificate under Section 28A of the SEBI Act was issued. On the facts, since no Section 122 application had been made at the relevant time, the protections or restrictions in Chapter IV were not attracted and thus did not bar issuance or enforcement of the certificate. [Paras 10]Chapter IV of the IBC (Sections 121-124) was not applicable because an application under Section 122 had not been filed when the SEBI certificate was issued.Final Conclusion: The appeal is dismissed. The High Court found no operative moratorium under the IBC at the time the SEBI recovery certificate was issued and held that Chapter IV of the IBC did not apply given that no Section 122 application had been filed; the question whether the levy is a 'fine' or a 'penalty' was left open for adjudication in appropriate proceedings. Issues Involved: The judgment involves the challenge against the order of Securities Exchange Board of India (SEBI) directing payment of a penalty under Section 28A of the SEBI Act and the Income Tax Act, 1961. The main issues include the applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) and the distinction between penalty and fine under the relevant laws.Summary of Judgment:Issue 1: Challenge against SEBI's Order: The appellants and respondents filed a writ petition against SEBI's order imposing a penalty, which was dismissed. The impugned certificate for payment of the penalty was challenged on the grounds of pending insolvency proceedings under IBC and the 1920 Act.Issue 2: Applicability of IBC Over SEBI Act: The learned Single Judge held that IBC overrides SEBI Act, but noted that no interim moratorium orders were in favor of the appellants except for one appellant. The penalty sought to be recovered was considered as a 'fine' under IBC, not covered by the moratorium.Issue 3: Penalty vs. Fine Distinction: The appellants argued that the penalty imposed by SEBI is different from a fine under IBC. They contended that the penalty was levied for violations under SEBI Act's Chapter VIA, not as a fine. Reference was made to legal definitions and Supreme Court decisions to support this argument.Issue 4: Moratorium under IBC: The Court analyzed the provisions of interim moratorium under IBC Sections 96 and 101, concluding that no moratorium was in effect during the relevant period for the appellants. Therefore, SEBI was justified in issuing the impugned certificate for penalty recovery.Conclusion: The Court found no grounds to differ with the Single Judge's view, dismissing the appeal. The issue of whether the penalty is a fine or not was left open for future adjudication. The judgment emphasized the absence of a moratorium during the relevant period and upheld SEBI's right to recover the penalty.