Anju Agarwal. R.P. For Shree Bhawani ... vs Bombay Stock Exchange & Ors

(Arising out of Order dated 10th September, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Allahabad Bench, Allahabad, in Company Petition No. (IB)/110/ALD/2017 and CA No. 100/2018)

IN THE MATTER OF:

Ms. Anju Agarwal Resolution Professional For Shree Bhawani Paper Mills Ltd. ...Appellant

Vs

Bombay Stock Exchange & Ors. ....Respondents

Present:

For Appellant: Mr. Anant A. Pavgi and Mr. A. Anand, Advocates.

For Respondents: Ms. Surekha Raman and Mr. N. Prashant Kumar Nair, Advocates for R-1.

Mr. Mahfooz Nazki, Mr. Sanyam Saxena, Mr. Sahil Khanna and Mr. Dutta Baruah, Advocates for R-2.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant- 'Resolution Professional' of 'Shree Bhawani Paper

Mills Limited'- ('Corporate Debtor') has challenged the order dated 10th

September, 2018 passed by the Adjudicating Authority (National Company

Law Tribunal), Allahabad Bench, Allahabad, whereby the Adjudicating 2

Authority held that Regulatory Authorities are not covered under the

'Moratorium' as provided under Section 14 of the Insolvency and

Bankruptcy Code, 2016 ("I&B Code" for short), relevant portion of which

reads as follows:

"It is to be clarified that Section 10 application was

admitted on the application of the Corporate Applicant,

i.e. Corporate Debtor, now he seeks exemption from

statutory compliances as required by the Stock

Exchange and Central Depository Services (India) Ltd.

and National Securities Depository Services (India) Ltd.

It is pertinent to mention that in Section 14 it is

specifically mention that in which area moratorium

order shall be effective. Regulatory Authority are not

covered under the moratorium order as provided U/S

14 of I&B Code. Given the moratorium issued under

Section 14 of the I&B Code, 2016, Regulatory

Authorities are not debarred from enforcing the

Regulations as prescribed under Rules. Bombay Stock

Exchange, under SEBI (LODR) Regulation, 2015 or

Central Depository Services (India) Ltd. and National

Securities Depositary Stocks India Limited are not

barred from compelling the Corporate Debtor company

to comply with the Regulations as prescribed under

Company Appeal (AT) (Insolvency) No. 734 of 2018 3

Rules. The CA is not maintainable Hence rejected at

the very threshold."

2. Learned counsel appearing on behalf of the Appellant submitted that

Section 14 (1) (a) of the 'I&B Code' is also applicable to the provisions of

'Securities Exchange Board of India (Listing Obligations and Disclosure

Requirements), Regulations, 2015', during the 'Moratorium' period, no

compliance of Regulations, 2015 is required.

3. It is also alleged that the Respondent- 'Bombay Stock Exchange'

threatened suspension of trading shares of the 'Corporate Debtor', which is

against the provision of Section 14 of the 'I&B Code'. According to him, the

Respondent- 'Bombay Stock Exchange' has no jurisdiction to suspend

trading shares nor can impose penalty in view of clear prohibition under

Section 14 of the 'I&B Code'.

4. Reliance has been placed on Section 238 of the 'I&B Code' to suggest

that the 'I&B Code' will have an overriding effect upon provisions of the

'Securities Exchange Board of India (Listing Obligations and Disclosure

Requirements), Regulations, 2015'.

5. Reliance has also been placed on the decision of the Hon'ble Supreme

Court in "Innoventive Industries Limited vs. ICICI Bank and Another─

(2018) 1 SCC 407" wherein the Hon'ble Supreme Court held that any

proceeding under any law against the 'Corporate Debtor' cannot be

proceeded once Moratorium is in effect.

Company Appeal (AT) (Insolvency) No. 734 of 2018 4

6. Learned counsel appearing on behalf of the Respondents- 'Securities

Exchange Board of India' and 'Bombay Stock Exchange' referring to Section

14 and Section 17 (2) (e) of the 'I&B Code' submitted that Section 14 is not

applicable nor the 'Securities Exchange Board of India' or the 'Bombay

Stock Exchange' can be prohibited from taking actions in terms with the

'SEBI Act, 1992' and Regulations framed therein.

7. Reliance has been placed on Section 28A (3) of the 'SEBI Act, 1992' to

suggest that the said provision will prevail over the 'I&B Code'.

8. Referring to the decision of the Hon'ble High Court of Delhi in

Criminal Appeal No. 143 of 2018 and Criminal M.A. No. 2262 of 2018

disposed of on 2nd April, 2019, it is submitted that the offender of ill-gotten

assets so as to be perceived to be sharing the loot cannot take benefit of the

provisions of Section 14.

9. We have heard learned counsel for the parties and perused the

record.

10. Section 14(1) (a) of the 'I&B Code' relates to 'Moratorium' and reads

as follows:

"14. Moratorium.--(1) Subject to provisions of sub-

sections (2) and (3), on the insolvency commencement

date, the Adjudicating Authority shall by order declare

moratorium for prohibiting all of the following, namely:--

Company Appeal (AT) (Insolvency) No. 734 of 2018 5

(a) the institution of suits or continuation of

pending suits or proceedings against the

corporate debtor including execution of any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;"

11. Section 17 while deals with 'management of affairs of 'Corporate

Debtor' by 'Interim Resolution Professional'. Sub-section (2) of Section 17

empowers the 'Interim Resolution Professional' to act in terms of the

provisions therein including clause (e) of Section 17(2) which reads as

follows:

17. Management of affairs of corporate debtor by

interim resolution professional.--(1) From the date of

appointment of the interim resolution professional,--

(a) the management of the affairs of the corporate

debtor shall vest in the interim resolution

professional;

xxx xxx xxx

(2) The interim resolution professional vested with the

management of the corporate debtor shall--

xxx xxx xxx

(e) be responsible for complying with the requirements

under any law for the time being in force on behalf of

the corporate debtor."

Company Appeal (AT) (Insolvency) No. 734 of 2018 6

12. From the aforesaid provisions, it is clear that the 'Interim Resolution

Professional' is responsible for complying with the requirements under any

law for the time being in force on behalf of the 'Corporate Debtor', which

includes the 'SEBI Act, 1992' and 'Securities Exchange Board of India

(Listing Obligations and Disclosure Requirements), Regulations, 2015'

framed therein.

13. The question arises for consideration is whether on failure to perform

the duties, if any, penal order is passed for penalty imposed on the

'Corporate Debtor' or any recovery can be made in terms of Section 28A of

the 'SEBI Act, 1992'.

14. According to learned counsel for 'Securities Exchange Board of India'

and the 'Bombay Stock Exchange', Section 28A of the 'SEBI Act, 1992' will

have overriding effect on the provisions of Section 14 of the 'I&B Code'.

However, such submission cannot be accepted for the reasons as

mentioned and discussed below.

15. Section 28A of 'SEBI Act, 1992' relates to 'recovery of amounts' and

reads as follows:

"28A. Recovery of amounts.─ (1) If a person fails to

pay the penalty imposed by the adjudicating officer or

fails to comply with any direction of the Board for refund

of monies or fails to comply with a direction of

disgorgement order issued under section 11B or fails to

Company Appeal (AT) (Insolvency) No. 734 of 2018 7

pay any fees due to the Board, the Recovery Officer may

draw up under his signature a statement in the

specified form specifying the amount due from the

person (such statement being hereafter in this Chapter

referred to as certificate) and shall proceed to recover

from such person the amount specified in the certificate

by one or more of the following modes, namely:--

(a) attachment and sale of the person's movable

property;

(b) attachment of the person's bank accounts;

(c) attachment and sale of the person's

immovable property;

(d) arrest of the person and his detention in

prison;

(e) appointing a receiver for the management of

the person's movable and immovable properties,

and for this purpose, the provisions of sections

220 to 227, 228A, 229, 232, the Second and

Third Schedules to the Income-tax Act, 1961 and

the Income-tax (Certificate Proceedings) Rules,

1962, as in force from time to time, in so far as

may be, apply with necessary modifications as

if the said provisions and the rules made

thereunder were the provisions of this Act and

referred to the amount due under this Act

Company Appeal (AT) (Insolvency) No. 734 of 2018 8

instead of to income-tax under the Income-tax

Act, 1961.

Explanation 1.-- For the purposes of this sub-

section, the person's movable or immovable

property or monies held in bank accounts shall

include any property or monies held in bank

accounts which has been transferred directly or

indirectly on or after the date when the amount

specified in certificate had become due, by the

person to his spouse or minor child or son's wife

or son's minor child, otherwise than for adequate

consideration, and which is held by, or stands in

the name of, any of the persons aforesaid; and

so far as the movable or immovable property or

monies held in bank accounts so transferred to

his minor child or his son's minor child is

concerned, it shall, even after the date of

attainment of majority by such minor child or

son's minor child, as the case may be, continue

to be included in the person's movable or

immovable property or monies held in bank

accounts for recovering any amount due from the

person under this Act.

Company Appeal (AT) (Insolvency) No. 734 of 2018 9

Explanation 2.-- Any reference under the

provisions of the Second and Third Schedules to

the Income-tax Act, 1961 and the Income-tax

(Certificate Proceedings) Rules, 1962 to the

assessee shall be construed as a reference to

the person specified in the certificate.

Explanation 3.-- Any reference to appeal in

Chapter XVIID and the Second Schedule to the

Income-tax Act, 1961, shall be construed as a

reference to appeal before the Securities

Appellate Tribunal under section 15T of this Act.

(2) The Recovery Officer shall be empowered to seek the

assistance of the local district administration while

exercising the powers under sub-section (1).

(3) Notwithstanding anything contained in any other law

for the time being in force, the recovery of amounts by a

Recovery Officer under sub-section (1), pursuant to non-

compliance with any direction issued by the Board

under section 11B, shall have precedence over any other

claim against such person.

(4) For the purposes of sub-sections (1), (2) and (3), the

expression ‗‗Recovery Officer ''means any officer of the

Board who may be authorised, by general or special

Company Appeal (AT) (Insolvency) No. 734 of 2018 10

order in writing, to exercise the powers of a Recovery

Officer."

16. As per Section 14 (1) (a) of the 'I&B Code', the institution of suits or

continuation of pending suits or proceedings against the 'Corporate Debtor'

including execution of any judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority is prohibited.

17. Thus, we find that Section 28A of the SEBI Act, 1992 including sub-

Section (3) therein is in contravention of Section 14 of the 'I&B Code'.

18. Section 238 of the 'I&B Code' is overriding provision and reads as

follows:

"238. Provisions of this Code to override other

laws.--The provisions of this Code shall have effect,

notwithstanding anything inconsistent therewith

contained in any other law for the time being in force or

any instrument having effect by virtue of any such

law."

19. Section 28A of the 'SEBI Act, 1992' being inconsistent with Section

14 of the 'I&B Code', we hold that Section 14 of the 'I&B Code' will prevail

over Section 28A of the 'SEBI Act, 1992' and 'Securities Exchange Board of

India' cannot recover any amount including the penalty from the 'Corporate

Debtor'. The 'Bombay Stock Exchange' for the same very reason cannot

Company Appeal (AT) (Insolvency) No. 734 of 2018 11

take any coercive steps against the 'Corporate Debtor' nor can threaten the

'Corporate Debtor' for suspension of trading of shares.

20. The 'Bombay Stock Exchange' deals with the shares. The shares of

the 'Corporate Debtor', if listed with the 'Bombay Stock Exchange', can be

dealt with by the 'Bombay Stock Exchange'. However, in view of Section 18

of the 'I&B Code', the 'Interim Resolution Professional' while taking control

and custody of any asset including the tangible and intangible assets,

cannot sell the shares of the 'Corporate Debtor' during the period of

'Moratorium' except in accordance with the provisions of the 'I&B Code' and

with the approval of the 'Committee of Creditors'. Therefore, dealing with

the shares of the 'Corporate Debtor' by the 'Bombay Stock Exchange'

during the period of 'Moratorium' normally does not arise. The shares can

be transferred only in the manner prescribed under the 'I&B Code' and

following requirements framed under the 'SEBI Act, 1992' and the

'Companies Act, 2013'.

21. At this stage, we may mention that in the case of "Pr. Director

General of Income Tax (Admn. & TPS) vs. M/s. Synergies Dooray

Automotive Ltd. & Ors. etc.─ Company Appeal (AT) (Insolvency) No.

205 of 2017 etc.", this Appellate Tribunal held that the statutory dues i.e.

the dues to Central Government or the State Government arising under any

law for the time being in force and payable come within the meaning of

'Operational Debt'. If penalty is imposed or amount is payable to the

'Securities Exchange Board of India' in such case, it may claim as an

Company Appeal (AT) (Insolvency) No. 734 of 2018 12

'Operational Creditor' but cannot recover the same during the 'Resolution

Process'.

The impugned order dated 10th September, 2018 stands modified and

clarified to the extent above. The appeal stands disposed of with aforesaid

observations and directions. However, in the facts and circumstances of the

case, there shall be no order as to costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

(Kanthi Narahari) Member(Technical)

NEW DELHI 23rd April, 2019

AR

Company Appeal (AT) (Insolvency) No. 734 of 2018