Bohar Singh Dhillon vs Rohit Sehgal (Interim R.P.) & Ors

(Arising out of Order dated 14th August, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in C.P. No. IB-547(PB) /2018)

IN THE MATTER OF:

Mr. Bohar Singh Dhillon ...Appellant

Vs.

Mr. Rohit Sehgal (Interim Resolution Professional) & Ors. ...Respondents

Present: For Appellant: - Mr. Ajit Kumar Sinha, Senior Advocate with Mr. Sohel Rishabh and Mr. Ritesh Agrawal, Advocates.

For Respondents:- Mr. Kinshuk Chatterjee and Ms. Deepti Bhardwaj, Advocates for R.P.

Mr. Krishnendu Dutta, Mr. N. Raja Singh, Ms. Manisha Chaudhary and Mr. Niladree Chatterjee, Advocates for R2-R34.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant, Shareholder of 'M/s. HBN Dairies & Allied Ltd.'-

('Corporate Debtor') has preferred this appeal against the order dated 14th

August, 2018 passed by the Adjudicating Authority (National Company

Law Tribunal), Principal Bench, New Delhi, whereby the application 2

under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I&B

Code" for short) filed by the Respondents have been admitted.

2. Learned counsel for the Appellant submitted that 'Securities and

Exchange Board of India' having already taken action against the

'Corporate Debtor', the application under Section 7 was not maintainable.

The contesting Respondent is also not a 'Financial Creditor'.

3. Learned counsel appearing on behalf of the 1st & 35th Respondents

submitted that the 'Corporate Debtor' illegally collected money to the tune

of Rs. 1136 Crores under its unauthorised 'Collective Investment

Schemes'. A recovery Certificate dated 14th September, 2017 for an

amount of Rs. 1136 Crores was drawn up against the 'Corporate Debtor'

pursuant to orders passed by the 'Securities and Exchange Board of

India' as confirmed by the 'Securities Appellate Tribunal'. Thereafter, the

immovable properties held by the 'Corporate Debtor' were attached vide

order dated 29th September, 2017 passed by the Recovery Officer,

'Securities and Exchange Board of India', Northern Regional Office, New

Delhi.

4. It was further submitted that the group of investors ('Financial

Creditors') including the contesting Respondents were completely

frustrated by the long delay due to action of the 'Securities and Exchange

Board of India', therefore, they filed jointly the Insolvency Petition

Company Appeal (AT) (Insolvency) No. 665 of 2018 3

application under Section 7 of the 'I&B Code' for initiating the 'Corporate

Insolvency Resolution Process', wherein the impugned order was passed.

5. Learned counsel appearing on behalf of 2nd to 34th Respondents

submitted that the said Scheme of the 'Corporate Debtor' was held to be

an un-authorised Collective Investment Scheme by the 'Securities

Exchange Board of India' vide its order dated 12th February, 2015. The

said order dated 12th February, 2015 passed by the 'Securities and

Exchange Board of India' was challenged before the 'Securities Appellate

Tribunal', Mumbai. In terms of the order dated 28th June, 2017 passed

by the 'Securities Appellate Tribunal', the 'Corporate Debtor' and its

Directors were directed to furnish list of their immovable properties so

that the said properties may be sold by the 'Securities and Exchange

Board of India' to repay the amounts due to the investors.

6. We have heard learned counsel appearing on behalf of the

Appellant and Respondents and perused the record.

7. In the case of "Ms. Anju Agarwal Vs. Bombay Stock Exchange

& Ors.─ Company Appeal (AT) (Insolvency) No. 734 of 2018" by its

Judgment dated 23rd April, 2019, this Appellate Tribunal observed and

held as follows:

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

'Moratorium' and reads as follows:

Company Appeal (AT) (Insolvency) No. 665 of 2018 4

"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:--

(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

Company Appeal (AT) (Insolvency) No. 665 of 2018 5

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."

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.

Company Appeal (AT) (Insolvency) No. 665 of 2018 6

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 pay any fees due to the Board, the

Recovery Officer may draw up under his

Company Appeal (AT) (Insolvency) No. 665 of 2018 7

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,

Company Appeal (AT) (Insolvency) No. 665 of 2018 8

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 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

Company Appeal (AT) (Insolvency) No. 665 of 2018 9

property or monies held in bank accounts for

recovering any amount due from the person

under this Act.

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-

Company Appeal (AT) (Insolvency) No. 665 of 2018 10

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 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:

Company Appeal (AT) (Insolvency) No. 665 of 2018 11

"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 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

Company Appeal (AT) (Insolvency) No. 665 of 2018 12

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'."

8. In view of the aforesaid position of law, we hold that the application

under Section 7 is maintainable and till the period of 'Moratorium'

continues, the 'Securities and Exchange Board of India' cannot recover

any amount nor can sell the assets of the 'Corporate Debtor' during the

'Moratorium' period.

Though we have held that the application under Section 7 is

maintainable while step has been taken by the 'Securities and

Exchange Board of India' the 'Resolution Professional' is required

to act in terms of Section 17(2) (e) of the 'I&B Code' for complying

with the requirements under the 'Securities and Exchange Board

of India Act' and Regulations framed thereunder as well as the

guidelines issued by the Regulatory Authority. It is also made clear

Company Appeal (AT) (Insolvency) No. 665 of 2018 13

that the 'Securities and Exchange Board of India' is however

entitled to take action against individual including the former

Directors and Shareholders of the 'Corporate Debtor'.

9. In view of the aforesaid position of law, we are not inclined to grant

any relief and dismiss the appeal with the aforesaid observations. No

costs.

(Justice S.J. Mukhopadhaya) Chairperson

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

(Kanthi Narahari) Member(Technical)

NEW DELHI 9th May, 2019 AR

Company Appeal (AT) (Insolvency) No. 665 of 2018