2019 (2) TMI 1668 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Corporate Applicant - outstanding debts - Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT - It is worth to note that SEBI had initiated action against the Corporate Applicant for recovery of its dues and the figure of ₹ 2,18,57,301/- has been arrived at after part-recovery of its dues. Hence, these dues are nothing but in the nature of Regulatory Dues and not operational dues. On merits it can further be added that this Petitioner has not defaulted in any payments except the regulatory dues of SEBI and BSE. The Petitioner has no other Financial/Operational Creditor. Prima facie, it seems that this is a Petition filed with an intention to escape the liability of paying off the Regulatory Dues . Insolvency Resolution Process of this Corporate Applicant would create a wrong precedent for those defaulters who have not paid the government dues or regulatory dues but by filing insolvency proceedings seeking a shelter against recovery on the ground of commencement of Moratorium in case of admission of insolvency petition - SEBI has enough power to realize the outstanding debt by direct recovery from the revenue operations of the debtor. The Petition is defective as the Petitioner does not owe Operational/Financial dues to SEBI or BSE or any other entity. As far as the regulatory dues of SEBI and BSE are concerned, SEBI has its own separate mechanism to recover the same. No fruitful purpose shall be served to declare the Corporate Debtor as insolvent having business operations or resources of sufficient income through which the statutory liability ought to have been squared up under the instructions of the regulatory authorities. Petition dismissed.

Summary

Issues Involved:
1. Application under Section 10 of the Insolvency and Bankruptcy Code (IBC).
2. Nature of the debt owed to SEBI and BSE.
3. Financial position of the Corporate Applicant.
4. Regulatory dues vs. Operational Debt.
5. Maintainability of the petition.

Issue-wise Detailed Analysis:

1. Application under Section 10 of the Insolvency and Bankruptcy Code (IBC):
The petitioner, Vyomit Shares Stock & Investment Private Limited, filed an application invoking Section 10 of the IBC, submitting Form No. 6 under Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The application was filed on 07.02.2018 in the capacity of a "Corporate Applicant" due to the inability to meet claims by various Operational Creditors.

2. Nature of the debt owed to SEBI and BSE:
The petitioner listed debts totaling ?2,27,07,243/- with the amount in default being ?2,19,96,247/-. The major creditors were SEBI and BSE, with SEBI demanding ?8,72,92,655/- along with interest @15% p.a. and subsequently reducing the balance dues to ?2,18,57,301/- as of 31.10.2017. The dues payable towards BSE liability were shown in the account summary dated 01.01.2018.

3. Financial position of the Corporate Applicant:
The financial statements of the Corporate Applicant revealed a profit of ?12,40,850/- before tax as of 31.03.2017. The Balance Sheet dated 31.03.2017 showed liabilities under "Other Current Liabilities" amounting to ?8,74,42,840/- and a cash balance of ?77,64,843/-. The company had fixed assets worth approximately ?4,75,727/- and other income from interest on bank FD and dividend income amounting to ?13,20,010/-. This indicated that the company had sufficient annual income and resources, questioning the necessity to declare insolvency.

4. Regulatory dues vs. Operational Debt:
The tribunal noted that the dues owed to SEBI were regulatory in nature and not operational debts. The findings referenced a prior decision (BSE V. Asahi Infrastructure & Projects Limited) which stated that regulatory dues are not included in the definition of "Operational Debt" as per the Insolvency Law Committee's report. The report highlighted that regulatory bodies like SEBI have wide-ranging powers to enforce their orders and recover dues, thus regulatory dues need not be treated as operational debts.

5. Maintainability of the petition:
The petition was deemed motivated to circumvent statutory dues. The tribunal concluded that the petitioner did not have any other financial or operational creditors and that the insolvency resolution process would only serve to avoid paying regulatory dues. SEBI has sufficient mechanisms to recover dues without the need for insolvency proceedings. Consequently, the petition was found defective and was dismissed.

Conclusion:
The petition filed by Vyomit Shares Stock & Investment Private Limited under Section 10 of the IBC was dismissed on the grounds that it was not maintainable. The tribunal determined that the debts owed to SEBI and BSE were regulatory dues and not operational debts, and that the petitioner had sufficient financial resources to meet these obligations. The application was seen as an attempt to evade regulatory dues, and therefore, no fruitful purpose would be served by declaring the Corporate Applicant insolvent.