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2023 (7) TMI 210 - AT - Insolvency and BankruptcyOverriding effect of IBC on all proceedings after initiation of Section 7 Application - SEBI can auction the property of the Corporate Debtor or not - HELD THAT - Section 7 Application has been filed by Respondent Nos 3 to 102 who are investors in the Corporate Debtor who have not been refunded their money in spite of Order dated 29.02.2016 passed by SEBI. The sequence of events as noted above indicates that Appellant-SEBI after the Order dated 29.02.2016, has issued a recovery certificate and has attached the properties of the Corporate Debtor, its directors, its associate Companies and has also conducted auction of 15 properties by which amount of Rs. 104 Crores have been received. It is well settled that proceedings by Financial Creditors under Section 7 can be initiated despite pendency of any other proceedings relating to the Corporate Debtor. Right given to a Financial Creditor under IBC can be invoked by Financial Creditor despite any proceeding pending with regard to Corporate Debtor in any other forum. The present is a case where Creditors of the Corporate Debtor have initiated Section 7 Application since the amount invested by them was not being refunded by the Corporate Debtor in spite of order passed by the SEBI Dated 29.02.2016. The Hon ble Supreme Court in Indian Overseas Bank Vs. RCM Infrastructure Limited 2022 (5) TMI 926 - SUPREME COURT have categorically held that after moratorium under Section 14(1)(c) comes into operation, no proceeding to recover against the Corporate Debtor can be continued. Law is well settled that when moratorium comes into operation, no other proceedings for recovery against the Corporate Debtor can be continued. The Resolution Professional has also appeared before the High Court in the Writ Petition where Interim Order was passed on 09.01.2019 before the initiation of proceedings under Section 7 - there are no doubt that RP shall obtain necessary clarification and modification from the High Court to proceed further in the CIRP Process before finalisation of CIRP Process. There are no grounds have been made out in this Appeal to interfere with the Impugned Order passed by the Adjudicating Authority admitting Section 7 Application. Present is a case where debt and default has been admitted and does not even a case of the Appellant that there is no debt and default at the instance of the corporate debtor. Appellant itself has initiated proceeding against the Corporate Debtor for recovery. Resolution Professional has also appeared in Writ Petition where appropriate clarification/modification has been sought for. There are no error in the order of the Adjudicating Authority warranting any interference in this Appeal, there is no merit in the Appeal, the Appeal is dismissed.
Issues Involved:
1. Admissibility of Section 7 Application under Insolvency and Bankruptcy Code (IBC). 2. SEBI's attachment and recovery proceedings. 3. Pendency of proceedings under the Maharashtra Protection of Interest of Depositors (MPID) Act. 4. Impact of the Bombay High Court's interim orders. 5. Overriding effect of IBC over other laws. Summary: 1. Admissibility of Section 7 Application under IBC: The National Company Law Appellate Tribunal (NCLAT) upheld the National Company Law Tribunal (NCLT) Mumbai Bench's order admitting the Section 7 Application filed by financial creditors against Pancard Clubs Limited. The Tribunal emphasized that proceedings by financial creditors under Section 7 can be initiated despite the pendency of other proceedings relating to the corporate debtor. The right given to a financial creditor under IBC can be invoked regardless of any other pending proceedings. 2. SEBI's Attachment and Recovery Proceedings: SEBI had taken steps to recover funds from Pancard Clubs Limited following complaints of fraudulent fund mobilization. SEBI's actions included attaching bank accounts and properties, and conducting auctions. However, the Tribunal noted that initiation of Corporate Insolvency Resolution Process (CIRP) under IBC cannot be nullified by any order passed by SEBI. The Tribunal referenced a previous order stating that SEBI's actions cannot impede the initiation of insolvency proceedings under IBC. 3. Pendency of Proceedings under MPID Act: The Tribunal acknowledged that the Government of Maharashtra had attached properties of the corporate debtor under the MPID Act. However, it held that the pendency of such proceedings does not preclude the initiation of Section 7 Application under IBC. The Tribunal emphasized that the objective of MPID Act proceedings is to protect investors' interests, which aligns with the goals of CIRP under IBC. 4. Impact of the Bombay High Court's Interim Orders: The Tribunal noted that the Bombay High Court had issued interim orders regarding the auction of properties by SEBI. The Resolution Professional (RP) had appeared before the High Court to inform about the initiation of CIRP. The Tribunal suggested that the RP should seek necessary clarifications and modifications from the High Court to proceed with the CIRP. 5. Overriding Effect of IBC over Other Laws: The Tribunal reiterated that IBC has an overriding effect over other laws, including SEBI's recovery proceedings and MPID Act proceedings. It referenced the Supreme Court's judgment in Indian Overseas Bank Vs. RCM Infrastructure Limited, which held that once moratorium under Section 14 of IBC comes into operation, no other recovery proceedings against the corporate debtor can continue. Conclusion: The Tribunal concluded that the NCLT did not err in admitting the Section 7 Application. It dismissed SEBI's appeal, stating that there were no grounds to interfere with the NCLT's order. The Tribunal emphasized that the initiation of CIRP is independent and cannot be precluded by the pendency of other proceedings. The appeal was dismissed, affirming the NCLT's decision to admit the Section 7 Application.
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