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2022 (9) TMI 1580 - AT - Insolvency and BankruptcyEligibility to be a resolution applicant in view of Section 29A(f) of the Insolvency and Bankruptcy Code 2016 - proceedings under Section 29-A(f) of the Code has been carried out against the Appellant on the basis of notice of BSE dated 28.03.2018 - falls under the scope of Section 11(4) of the SEBI Act 1992 - opportunity of hearing not provided - violation of principle of natural justice (Audi alterm partem) and is also violation of Section 11(4) of the SEBI Act 1992. HELD THAT - Section 29(A)(f) of the Code provides that A person not eligible to be resolution applicant (f) is prohibited by the securities and exchange board of India from trading in securities or accessing the securities markets. The Appellant in this case has been categorically debarred for the reasons that it failed to comply with the mandatory direction issued by the SEBI in the circular dated 10.10.2016 and 01.08.2017 by which the Appellant was repeatedly cautioned that in case one of the option is not exercised within the time line prescribed the necessary action shall be taken as prescribed in clause 6 of the circular dated 10.10.2016. The argument of Counsel for the Appellant not impressed upon that the SEBI was required to follow the provisions of Section 11(4) of the Act before initiating the action in terms of circular dated 10.10.2016 and 01.08.2017 as the said action has been taken in terms of Section 11(1) of the Act. Reference could be had to be the decision of the Hon ble Supreme Court in the case of Sahara India Real Estate Corporation Limited Ors. 2012 (9) TMI 374 - SUPREME COURT in which it was held that sub-section (2) is subservient to sub-section (1) of section 11. Therefore both sub-sections (2A) and (4) will inferentially be subservient to sub-section (1) of section 11 of the SEBI Act. Therefore the obligation cast on SEBI to protect the interest of investors in securities to promote the development of the securities market and to regulate the securities market by such measure as it thinks fit remains undiluted even by subsections (2A) and (4) of Section 11 of the SEBI Act. Counsel for the Appellant has submitted that there is no delegation of power by SEBI to BSE which is required to be done in accordance with Section 19 of the Act but in this case it is opined that BSE has passed on the information to the Appellant by the impugned notice that it had been declared as non-compliant of Section 29(A) (f) of the Code in view of its act and conduct considered by the SEBI in pursuance of the circulars dated 10.10.2016 and 01.08.2017 and has exercised power under Section 11(1) of the Act. It is also a fact that the Appellant had admitted that it is barred in the list of BSE from accessing the security market for 10 years and when the resolution plan was submitted on 28.01.2019 and the Appellant was ineligible in view of Section 29(A) (f) of the Code. The impugned order does not require any interference as there is no merit in these appeals and hence the same are hereby dismissed.
Issues Involved:
1. Ineligibility of the Appellant under Section 29A(f) of the Insolvency and Bankruptcy Code, 2016. 2. Validity of SEBI's debarment order and its compliance with natural justice principles. 3. Delegation of powers by SEBI to BSE. 4. Adjudicating Authority's decision-making process and adherence to legal standards. Detailed Analysis: 1. Ineligibility of the Appellant under Section 29A(f) of the Insolvency and Bankruptcy Code, 2016: The Appellant was declared ineligible to be a resolution applicant under Section 29A(f) of the Insolvency and Bankruptcy Code, 2016, due to being debarred by SEBI from accessing the securities market. The Adjudicating Authority, in its order dated 24.05.2022, held that the Appellant was ineligible to submit the resolution plan due to the debarment order by SEBI, which was in effect at the time of the submission and approval of the resolution plan by the Committee of Creditors (CoC). 2. Validity of SEBI's Debarment Order and Compliance with Natural Justice Principles: The Appellant argued that the SEBI's debarment order was punitive and violated the principles of natural justice, specifically the "audi alteram partem" rule, as it was passed without providing an opportunity for a hearing. The Appellant contended that the debarment order did not comply with Section 11(4) of the SEBI Act, 1992, which mandates that such orders be in writing and contain reasons. However, the Respondent countered that SEBI's actions were administrative and fell under Section 11(1) of the SEBI Act, which does not require a hearing or a written order with reasons. The Tribunal upheld the Respondent's view, citing the Supreme Court's decision in Sahara India Real Estate Corporation Limited & Ors. Vs. SEBI, which stated that SEBI's regulatory powers under Section 11(1) are broad and not limited by the procedural requirements of Section 11(4). 3. Delegation of Powers by SEBI to BSE: The Appellant argued that SEBI did not delegate its powers to BSE as required under Section 19 of the SEBI Act, and hence, BSE could not issue the debarment order. The Tribunal, however, found that BSE acted in accordance with SEBI's circulars dated 10.10.2016 and 01.08.2017, which provided the framework for actions against non-compliant Exclusively Listed Companies (ELCs). The Tribunal noted that the BSE's notice dated 28.03.2018 was based on SEBI's administrative directives and was within the scope of SEBI's regulatory powers under Section 11(1). 4. Adjudicating Authority's Decision-Making Process and Adherence to Legal Standards: The Tribunal examined the Adjudicating Authority's process and found that it correctly applied the relevant legal standards. The Authority considered the Appellant's ineligibility under Section 29A(f) due to the SEBI debarment and appropriately dismissed the Appellant's applications. The Tribunal also noted that the Appellant had previously challenged the SEBI debarment in the Punjab and Haryana High Court but had withdrawn the petition, choosing instead to raise the issue before the Tribunal. The Tribunal emphasized that challenges to the validity of SEBI's orders should be addressed in the appropriate forum, such as a writ court, rather than in insolvency proceedings. Conclusion: The Tribunal dismissed the appeals, affirming the Adjudicating Authority's orders declaring the Appellant ineligible under Section 29A(f) of the Insolvency and Bankruptcy Code, 2016. The Tribunal found no merit in the Appellant's arguments regarding the validity of SEBI's debarment order and the delegation of powers to BSE. The Tribunal also excluded the period spent during the proceedings before it from the insolvency resolution process timeline.
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