2017 (9) TMI 492 - Tri - Insolvency and Bankruptcy

Insolvency and Bankruptcy process - violated Regulation 3 of CIS Regulations - Debtor Company had launched CIS without registering itself as Collective Investment Management Company (CIMC) - Held that - On seeing the present petition filed by the Operational Creditor, it seems there was no correspondence between this Creditor and the Corporate Debtor in between 2013 and 2016 except giving a notice in the year 2016 u/s 434 of the Companies Act, 1956. We don t say that Operational Creditor shall remain corresponding with the Corporate Debtor until this proceeding is initiated but if the present case is set against the background of SEBI orders, then an inference could also be drawn that an effort has been made to take out the Company as well as the investment already frozen by SEBI from the claws of SEBI. Of course, we are not proceeding on the premise that since no correspondence from 2013 to 2016 between the petitioner and the corporate debtor, this petition is liable to be dismissed, it can t be so. hen Bench comes to determination that SEBI order holds field on different connotation, then, when this Bench is of the opinion that the subject matter before this Bench modifies the rights and obligations over an asset upon which already SEBI order in action, then to our wisdom, no order could be passed invoking section 238 jurisdictions to nullify SEBI order. Our point is, the case before SEBI is a case involving fraud by the debtor entering into agreements not recognised by law and raised funds for an amount of more than ₹ 7000 crores, thereby this Code has no overriding effect over the order passed by SEBI, hence the jurisdiction under this Code will not come into operation to nullify the order passed by SEBI, henceforth, no order can be passed in this case in conflict to the order come into existence from SEBI to direct the interest of 51,55,516 victims. Petition dismissed. Petitioner entitlement to file this Petition as Creditor - Held that - Here in the present case, it is designed as collective investment scheme falling under Section 11AA of the SEBI Act but whereas to do such business, no permission has been taken from the SEBI. Therefore even if is to be taken as Operational Creditor, since there is no lawful agreement recognisable by SEBI creating jural relationship in between the petitioner and the company, this relationship between the petitioner and the corporate debtor can t be considered either as relation in between the investor and the company or as relation in between the creditor and debtor, whereby we hereby hold that this Petitioner is not entitled to file this Petition as Creditor before this Bench.

Issues Involved:
1. Default in payment by the Corporate Debtor.
2. Existence of a dispute regarding the debt.
3. SEBI's order against the Corporate Debtor.
4. Applicability of Section 238 of the Insolvency and Bankruptcy Code, 2016.
5. Relationship between the Operational Creditor and Corporate Debtor.
6. Validity of claims under the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Default in Payment by the Corporate Debtor:
The Operational Creditor filed a company petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor for defaulting on a payment of ?6,25,42,007.04. The Operational Creditor had entered into multiple agreements with the Corporate Debtor for construction projects and raised invoices accordingly. Despite admitting a debt of ?2,00,15,969, the Corporate Debtor failed to make payments, prompting the Operational Creditor to issue notices under Section 434 of the Companies Act, 1956, and subsequently under Section 8 of the Insolvency and Bankruptcy Code, 2016.

2. Existence of a Dispute Regarding the Debt:
The Corporate Debtor contended that there was a pre-existing dispute, claiming that the Operational Creditor failed to deliver the agreed-upon work, leading to arbitration proceedings. The Corporate Debtor argued that the petition should be dismissed due to the existence of this dispute and the initiation of arbitration proceedings before the filing of the insolvency petition.

3. SEBI's Order Against the Corporate Debtor:
The Tribunal noted a significant development involving SEBI, which had passed an order against the Corporate Debtor for operating unregistered Collective Investment Schemes (CIS) and collecting over ?7000 crores from the public. SEBI's order mandated the Corporate Debtor to refund the collected money and prohibited it from accessing the securities market for four years. The Securities Appellate Tribunal (SAT) upheld SEBI's order.

4. Applicability of Section 238 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal examined whether Section 238 of the Insolvency and Bankruptcy Code, 2016, which provides an overriding effect over other laws, could nullify SEBI's order. The Tribunal concluded that there was no inconsistency between the SEBI Act and the Insolvency and Bankruptcy Code, as they dealt with different subject matters—investor protection and creditor-debtor issues, respectively. Therefore, Section 238 did not apply to override SEBI's order.

5. Relationship Between the Operational Creditor and Corporate Debtor:
In CP 1085/2017, the petitioner, an investor, claimed a debt based on a surrender value payment certificate issued by the Corporate Debtor. The Tribunal held that the relationship between the petitioner and the Corporate Debtor was not a jural relationship recognized by law, as the contract was part of an illegal CIS not registered with SEBI. Consequently, the petitioner could not be considered a creditor under the Insolvency and Bankruptcy Code.

6. Validity of Claims Under the Insolvency and Bankruptcy Code, 2016:
The Tribunal emphasized that for a claim to be valid under the Insolvency and Bankruptcy Code, there must be an enforceable agreement recognized by law. In both petitions, the Tribunal found that the agreements were part of an illegal CIS, and thus, the claims were not enforceable. The Tribunal dismissed both petitions, concluding that the Insolvency and Bankruptcy Code could not be used to override SEBI's order or to enforce claims arising from illegal agreements.

Conclusion:
The Tribunal dismissed both petitions without costs, emphasizing the lack of enforceable agreements and the non-applicability of Section 238 of the Insolvency and Bankruptcy Code to override SEBI's order. The Registry was directed to communicate the order to the Operational Creditor, Corporate Debtor, and SEBI within seven days.

← Previous Next →