2019 (4) TMI 1724 - AT - Insolvency and Bankruptcy

Scope of Moratorium Order - the Regulatory Authorities covered under the Moratorium as provided under Section 14 of the Insolvency and Bankruptcy Code, 2016 or not - 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 ? - HELD THAT - 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 - Section 28A of the SEBI Act, 1992 including sub-Section (3) therein is in contravention of Section 14 of the I B Code . 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. 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 . Appeal disposed off.

Summary

Issues:
1. Interpretation of Section 14 of the Insolvency and Bankruptcy Code, 2016 regarding the applicability of moratorium on Regulatory Authorities.
2. Applicability of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 during the moratorium period.
3. Jurisdiction of the Bombay Stock Exchange to suspend trading shares of a Corporate Debtor during the moratorium.
4. Conflict between Section 14 of the I&B Code and Section 28A of the SEBI Act, 1992 regarding recovery of amounts from the Corporate Debtor.

Analysis:

1. The Appellant, a Resolution Professional, challenged an order stating that Regulatory Authorities are not covered under the moratorium as per Section 14 of the I&B Code. The Appellant argued that the Securities Exchange Board of India (SEBI) regulations should not apply during the moratorium period. The Respondents contended that SEBI and the Bombay Stock Exchange are not prohibited from taking actions during the moratorium, citing Section 17(2)(e) of the I&B Code.

2. The Tribunal analyzed Section 14(1)(a) of the I&B Code, which declares a moratorium on legal proceedings against the Corporate Debtor. It noted that the Interim Resolution Professional is responsible for complying with all laws on behalf of the Corporate Debtor, including SEBI regulations. The question arose whether penalties under SEBI Act, 1992 could be imposed during the moratorium.

3. The Respondents argued that Section 28A of the SEBI Act, 1992 allows for the recovery of amounts, which they claimed overrides the moratorium under the I&B Code. However, the Tribunal held that Section 238 of the I&B Code gives precedence to its provisions over any other law, thus ruling that SEBI cannot recover amounts or penalize the Corporate Debtor during the moratorium.

4. The Tribunal clarified that the Bombay Stock Exchange cannot take coercive actions against the Corporate Debtor during the moratorium, including suspending trading shares. It emphasized that the Interim Resolution Professional must follow the I&B Code and seek approval from the Committee of Creditors before dealing with any assets, including shares. The Tribunal also highlighted a previous case where statutory dues were considered operational debts, but recovery during the resolution process was not permitted.

In conclusion, the Tribunal modified the impugned order, stating that SEBI cannot recover amounts from the Corporate Debtor during the moratorium period. The appeal was disposed of with the mentioned observations and directions, without any cost orders.