TaxTMI 
TaxTMI 
2022 (9) TMI 1580
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....o set of appeals i.e CA (AT) (Ins) No. 635 & 636 of 2022 and CA (AT) (Ins) No. 637 & 638 of 2022 as the issues involved in both set of appeals are common. However, for the sake of convenience, we are recording the facts of both set of appeals separately. Facts of Company Appeal (AT) (Insolvency) No. 635 & 636 of 2022 2. This appeal is directed against order dated 24.05.2022 passed by the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench) by which an application bearing I.A. No. 348 of 2021, filed by Respondent No. 1 M/s Shreeji Cotfab Limited for declaration that the Appellant is ineligible to be a resolution applicant in view of Section 29A(f) of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') has been allowed, I.A. No. 155 of 2021 filed by the Appellant 'Aggarsain Spinners Limited' to place additional documents to clarify the position of the statutory body i.e. Security Exchange Board of India (in short 'SEBI) has been dismissed and CA No. 287 of 2019, filed by the Appellant for accepting its resolution plan has been dismissed holding that the Appellant is ineligible in view of the Section 29-A(f) of the Code. 3. In brief, M/s Phoenix....
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....under Section 31 of the Code for approval of the resolution plan before the Adjudicating Authority. 6. According to RP, he received an email dated 15.06.2021 from Ayat Processors with some documents, stating that the Appellant was ineligible, in view of Section 29-A (f) of the Code because at the time of submissions of resolution plan and approval of the resolution plan by the CoC, it had already been debarred by the SEBI from accessing the securities market. The RP filed an additional affidavit dated 05.07.2021 apprising the Adjudicating Authority regarding the said information and documents brought on record by Ayat Processors in the matter of the Corporate Debtor. 7. An application bearing I.A. No. 155 of 2021 was filed by the Appellant to clarify the position of the SEBI in the matter. Another application bearing I.A. No. 348 of 2021 was filed by Respondent No. 1 for declaration that the Appellant was ineligible in view of Section 29-A(f) of the Code at the time of submission of resolution plan to the RP, at the time of completion of the said resolution plan by the CoC and had also filed a false affidavit of being Section 29-A compliant. 8. The Appellant is an Exclusiv....
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....assed without following the salutary principle of natural justice i.e. Audi alterm partem and is also in violation of Section 11(4) of the SEBI Act, 1992 (in short 'the Act') which provides for an order before such debarment, which should not only be in writing but also to contain reasons. He has also submitted that the fourth proviso to Section 11(4) of the Act mandates for an opportunity of hearing. 14. It is also submitted that there was no delegation of power by SEBI to BSE in circulars dated 10.10.2016 and 01.08.2017 to restrain any person from accessing the securities market and even if, for the sake of argument, it is presumed that the powers were delegated, the BSE could not have passed the order dated 28.03.2018, debarring the Appellant for a period of 10 years, in terms of Section 29-A(f), without following the mandatory procedure prescribed under Section 11(4) of the Act. Counsel for the Appellant has vehemently argued that the Adjudicating Authority has committed a patent error in declaring the Appellant as ineligible under Section 29-A (f) by holding that the SEBI has prohibited the Appellant for trading in security for accessing the security market and that the not....
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.... which is required to be passed during investigation or enquiry or on completion of such investigation or enquiry. It is argued that Section 11(4) is more person centric than it is related to the Company. It is further argued that the impugned notice dated 28.03.2018 is based upon the SEBI circular dated 01.08.2017. It is further submitted that Section 11(4) of the Act is subservient to Section 11(1) and has referred to the decision of Hon'ble Supreme Court in the case of Sahara India Real Estate Corporate Limited and Ors. Vs. Securities and Exchange Board of India and Anr. (Civil Appeal No. 9813 of 2011). 17. He has further submitted that the Appellant is unnecessarily harping upon passing of an order by the SEBI with reasons and in writing for the purpose of debarment which was not required because SEBI has taken administrative action by issuance of circulars dated 10.10.2016 and 01.08.2017 on the basis of which BSE has passed on the notice dated 28.03.2018 which is an administrative act of the SEBI. 18. It is further submitted that during the pendency of these proceedings, the Appellant had filed a writ petition no. 14490 of 2020 before the Punjab and Haryana High Cour....
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....ed that there is no order on record of debarment having been passed either by the SEBI or BSE, and until and unless an order is passed in terms of Section 11(4) of the Act, no action can be taken against the Appellant in terms of Section 29-A(f) of the Code. Facts of Company Appeal (AT) (Insolvency) No. 637 & 638 of 2022 23. These Company Appeal (AT) (Ins) Nos. 637 & 638 of 2022 are filed by Aggarsain Spinners Limited and Mr. Ramesh Garg against two separate orders, passed by the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench), of the same date i.e. 24.05.2022. In one order dated 24.05.2022, the Adjudicating Authority has allowed I.A. No. 342 of 2021 filed by the Resolution Professional (RP) (Sumat Gupta) by which he has sought a declaration that the Appellants are ineligible to submit the resolution plan because of Section 29(A)(f) of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') and dismissed the application of the Appellants bearing I.A. No. 154 of 2022 to place additional documents on record to clarify the position of a statutory body i.e. SEBI and by way of separate order dated 24.05.2022 dismissed the application bearing I.A. No. 45....
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.... under Section 30(6) of the Code for approval of the resolution plan which was pending adjudication. It is stated that on 15.06.2021 the RP had received two resolution plans one from Sanjay Garg on whatsapp and other from M/s Aayat Processors on email by which the RP was informed that RAs are not compliant of Section 29(A) of the Code because of which the Respondent company as well its directors have been barred from accessing the securities market w.e.f. 27.03.2018 till further orders, for a period of 10 years. According to the RP, he was prima facie convinced with the documents brought to his notice about the non-compliant of Section 29(A) of the Code by the Respondents as it searched the portal of SEBI as well as other stock exchanges and found the name of the Respondents appearing on the website of the BSE as persons debarred from accessing the securities market for a period of 10 years. It has come on record that the RP received a memo dated 29.10.2020 from the State Bank of India by which he came to know about the disqualification of the Respondents who has never informed him and had rather filed a false affidavit of being Section 29(A) compliant. The Respondents have placed ....
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....cular dated May 30, 2012 issued guidelines facilitating the exit of Derecognized/Non-operational stock exchanges and exit to the shareholders of exclusively listed companies (ELCs) by allowing them to get listed on nationwide stock exchanges after complying with the diluted listing norms of nationwide stock exchanges, failing which they would be moved to the Dissemination Board (DB). 2. Further, SEBI vide circular dated May 22, 2014, inter-alia, provided that ELCs, on de-recognized/non-operational stock exchanges, can also opt for voluntary delisting by following the existing delisting norms of SEBI. It was also specified that if the ELCs fail to comply with the same, they shall be moved to DB. 3. Subsequently, SEBI vide circular dated April 17, 2015 allowed a period of eighteen months' time to ELCs on DB to obtain listing upon compliance with the listing requirements of the nation-wide stock exchanges. 4. SEBI has been receiving representations seeking clarifications on raising of further capital and the process of exit of ELCs from the DB. Therefore, SEBI, in the interest of the investors of such ELCs, clarifies as follows: a. The respectiv....
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.... investors as mentioned under para 4.c and 4.d, it is prescribed that: a. The ELCs on the DB which are yet to indicate their intention to comply with listing or to provide exit shall submit their plan of action to designated stock exchanges latest within three months from the date of this circular to the satisfaction of the designated stock exchanges, failing which the designated exchange shall recommend action as specified under Para 6 of this circular. b. The designated stock exchanges shall review the plan of action and ensure completion of the process within 6 months. 6. Action against companies remaining on the DB a. Any promoter or director whose company is on the DB and has failed to demonstrate adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism as provided in this circular shall be liable for the following actions: * The company, its directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly associate with the securities market or seek listing for any equity shares for a period of ten years from the exit from the DB. * Free....
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....romoter with the justification therefore, and shall not contain any false or misleading statement. vi The announcement shall contain a declaration about the liability of the promoter to acquire the shares of the shareholders, who have not offered their shares under exit offer up to a period of one year from the completion of offer at the same price determined by the valuer. vii. The exit offer shall remain open for a period of minimum five working days during which the public shareholders shall tender their shares. The promoter shall open an escrow account in favour of independent valuer/designated stock exchange and deposit therein the total estimated amount of consideration on the basis of exit price and number of outstanding public shareholders. The escrow account shall consist of either cash deposited with a scheduled commercial bank or a bank guarantee, or a combination of both. The amount in the escrow account shall not be released to the promoter unless all the payments made in respect of shares tendered for the aforesaid period of one year. viii. The promoter shall make payment of consideration within fifteen working days from the date completion ....
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.... or seek listing for any equity shares for a period of ten years from the exit from the DB. * Freezing of shares of the promoters/directors. * List of the directors, promoters etc. of all non-compliant companies as available from the details of the company with NSE/BSE shall be disseminated on SEB/ website and shall a/so be shared with other related agencies. *Attachment of bank accounts/other promoters/directors of the companies so as to compensate the investors. 3. In order to ensure that exit option is provided to the public shareholders of ELCs that are non-compliant with the provisions of the said circular dated October 10, 2016 and have not submitted plan of action to the DSEs and in order to protect the interest of investors in ELCs on DB it is hereby directed that, to being with: a. Such ELCs and the Depositories shall not effect transfer, by was 0 sale, pledge, etc., of any of the equity shares and me corporate benefits such, as dividend, rights, bonus shares, split, etc. shall be frozen, for all the equity shares, held by the promoters or directors of non-compliant Exclusively one Companies till the promoters of such non-compli....
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....nt: Equity Subject: Exclusively Listed Companies (ElCs) of De-recognized / Non-operational exited-stock Exchanges placed in the Dissemination Board (DB). It is Informed that as per SES! CircularNo. SEB1/HO/MRD/DSA/CIR/P/2017/92 dated August 01, 2017 regarding action against Exclusively Listed Companies and its Promoters/Directors. The Exchange has shared the details of the non-compliant Exclusively Listed Companies and its Promoters / Directors with the Depositories on March 22, 2018, March 23,208, March 26, 2018, March 27, 2018 & March 28, 2018 for initiating the action against following exclusively Listed Companies and its Promoter/Directors in accordance with the above referred circular. The particulars shared with the Depositories are based on the extent of the data made available by De-recognized/Nonoperational/existed Stock Exchanges / ROC, to BSE: Sr. No. Company Name 1. ACME STAPATHI LTD 2. AGGARSAIN SPINNERD LTD x x x Further the consequences of non-compliant, includes the following:- 1. The non-compliant ELCs, its directors, its promoters and the companies which are promoted by any of them shall not be elig....
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....s markets; (f) promoting investors' education and training of intermediaries of securities markets; (g) prohibiting insider trading in securities; (h) regulating substantial acquisition of shares and takeover of companies; (i) calling for information from, undertaking inspection, conducting inquiries and audits of the [stock exchanges, mutual funds, other persons associated with the securities market], intermediaries and self-regulatory organisations in the securities market; (ia) calling for information and records from any person including any bank or any other authority or board or corporation established or constituted by or under any Central or State Act which, in the opinion of the Board, shall be relevant to any investigation or inquiry by the Board in respect of any transaction in securities; (ib) calling for information from, or furnishing information to, other authorities, whether in India or outside India, having functions similar to those of the Board, in the matters relating to the prevention or detection of violations in respect of securities laws, subject to the provisions of other laws for the time being in f....
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.... sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:- (a) suspend the trading of any security in a recognised stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (c) suspend any office-bearer of any stock exchange or selfregulatory organisation from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (e) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made th....
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....rom accessing the securities market till further orders for a period of 10 years. Action initiated due to non-compliance with SEBI Circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. Revoked the directions against the entity as they are compliant Kansal Suresh ACEPK8116F * 27.03.2016 16.02.2021 Restrained Director/Promoter of Aggarsain Spinners Ltd. from accessing the securities market till further orders for a period of 10 years. Action initiated due to non-compliance with SEBI Circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. Revoked the directions against the entity as they are compliant Jagdish Kansal Rai ACEPK0682N * 27.03.2016 16.02.2021 Restrained Director/Promoter of Aggarsain Spinners Ltd. from accessing the securities market till further orders for a period of 10 years. Action initiated due to non-compliance with SEBI Circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. Revoked the directions against the entity as they are compliant Gopal Krishan Arora ACBPK4161F * 27.03.2016 16.02.2021 Restrained Director/Promoter....
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....d True Copy of Board Resolution for exercising the option Attached 10. Details of contact person/compliance officer Name Tel No. Cell No. Mail Id. Mr. Ramesh Garg 0172-4644777 9814075222 [email protected] Thanking you, Yours faithfully, For Aggarsain Spinners Limited Ramesh Kumar Designation:Director DIN :01037508 Address:731, HUDA Sector-11 Panipat (Haryana)PIN-134109 E-MAIL ID:[email protected] REGD. OFFICE: BHOLA BHAWAN, GEETA COLONY, PANIPAT 143102" 36. Email dated 22.08.2017: "Submission of documents for removal of company name from Dissemination Board-Listing on other Stock Exchange Atul Dhotre [email protected] To: Direct listing [email protected] Tue, Aug 22, 2017 at 2:40PM Dear all, We are in receipt of plan of action, pursuant to SEBI circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. As you are aware that the said SEBI circular prescribed the process to be followed by ELCs for removal of its name from DB. As per the c....
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....ular to the satisfaction of the designated stock exchange. Further SEBI in the said circular also prescribed action against promoters/directors of such exclusively listed companies (ELCs) which do not provide any action plan. In order to comply with the above. ELCs were initially given a period till January 09, 2017 which was subsequently extended till June 30, 2017. According to the said SEBI circular ELCs were required to submit plan of action to the designated stock exchange exercising one of the two options prescribed by SEBI, the implementation of which was to be completed within a period of six months from the June 30, 2017 i.e. by December 31, 2017. We have observed that you have submitted the Plan of Action to BSE, however, it has been more than six months since we received intimation off the plan of action from your end but we are yet to receive the supporting remaining documents w.r.t completion/implementation of the plan of action. The documentation requirements and procedure to be followed by ELCs seeking removal from DB can be accessed at the following URL: http//www bseindia.com/investors/exercising_option.aspx....... You a....
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.... 10.10.2016. It has been noticed in the impugned order that in the closing balance sheet of the Appellant for the month of March, 2017 the Appellant had disclosed that: "Material changes Consequent to the closure of regional stock exchanges, name of your company has been moved to the DB of the BSE. The SEBI has given an option to such companies whose name has moved to DB either to given an exit option to the shareholders or to get the company listed at exchange having nation wide trading" 39. It is pertinent to mention that by email dated 23.06.2017 the Appellant submitted the plan of action regarding listing of equity shares at the stock exchange having nationwide trading in pursuance to the circular dated 10.10.2016. The SEBI sent email dated 02.08.2017 to the Appellant that it had received the plan of action submitted by it pursuant to the circular dated 10.10.2016 and informed it to complete the process in terms of circular of the SEBI. It also informed the Appellant that after submission of the plan of action by it the exchange has not yet received the remaining documents related to status of the company listing on other stock exchange. The Appellant....
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....Haryana to challenge the correctness of the notice of the SEBI but for the reasons best known to them the petition was withdrawn and permission was taken to raise all the issues before this Tribunal. 41. We also are of the view that if the Appellant had any issue with the veracity of the notice or circular of SEBI, it should have raised this issue in appeal in the relevant forum. We follow the Judgment of Hon'ble Supreme Court in the case of M/s Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka & Ors., Civil Appeal No. 9170 of 2019. 42. Section 29(A)(f) of the Code provides that "A person not eligible to be resolution applicant: (f) is prohibited by the securities and exchange board of India from trading in securities or accessing the securities markets." The Appellant in this case has been categorically debarred for the reasons that it failed to comply with the mandatory direction issued by the SEBI in the circular dated 10.10.2016 and 01.08.2017 by which the Appellant was repeatedly cautioned that in case, one of the option is not exercised within the time line prescribed, the necessary action shall be taken as prescribed in clause 6 of the circular dated 10.10....
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....to sub-section (1) of section 11. Therefore both sub-sections (2A) and (4) will inferentially be subservient to sub-section (1) of section 11 of the SEBI Act. Therefore, the obligation cast on SEBI, to protect the interest of investors in securities, to promote the development of the securities market, and to regulate the securities market " by such measure as it thinks fit", remains undiluted even by subsections (2A) and (4) of Section 11 of the SEBI Act." 44. The Tribunal has also observed that "Thus, it can be safely concluded that under the SEBI Act, it enjoins two types of powers first is quasijudicial power and second is regulatory power. So far as quasi-judicial powers of SEBI are concerned, a due process of law is to be adopted by SEBI before passing any order of punishment or penalty, but in the case in hand, it is the open-ended regulatory power of SEBI, which has been delegated to BSE, vide which Resolution Applicant has been debarred to access the capital market for 10 years. Thus, it can be held in unequivocal terms that Resolution Applicant was ineligible under Section 29A(f) of the Code and deemed to be prohibited by SEBI from trading the securities or accessing t....