2019 (3) TMI 1236 - Tri - Insolvency and Bankruptcy

Corporate insolvency proceedings - Appropriate forum - recovery mechanism - Regulatory Dues outstanding - whether the non-payment of listing fees is an operational debt or a regulatory due ? - scope of operational debt - HELD THAT - Regulatory dues need not be included in the definition of Operational Debt. Because of this final observation as made in Para 1.20 of the Law Commission Report this Bench is of conscientious view that in spite of the fact that there was a listing agreement executed between BSE with the Corporate Debtor being issuing company, but totally governed and supervised by the regulations issued by SEBI dated 02.09.2015. As discussed supra, the regulatory authority i.e. SEBI is already empowered to execute not only its recovery mechanism, but also enshrined with power to punish the defaulter, hence, the insolvency proceedings shall not be gainful either to the Regulator or the Exchange. As a consequence, the debt in question can also be categorised under the head Regulatory Dues . The debt in question thus falls within the ambit of Regulatory Dues . Therefore, as a sequel, need not be treated as an operational debt. It is also worth to add in this order that sub-section 3 of section 14 w.r.e.f 06.06.2018 prescribing that the transaction notified in consultation with Financial Sector Regulator be not covered under Moratorium clauses - keeping in mind the Legislative intent that while applying the moratorium as per the provisions of section 14 IBC, vide sub section (3), the provisions of moratorium U/s 14 IBC shall not apply on Financial sector Regulator . Had it been not so, the regulator shall be in a disadvantageous position in respect of regulatory dues being treated at par with Operational Debt as prescribed under IBC. This view shall put the Financial Sector Regulator at an advantageous pedestal so as to protect the interest of a regulator i.e. SEBI, as defined U/s 3(18) of IBC. As a consequence, the Debtor Company shall not get any shield or protection under the excuse of moratorium in respect of recovery of regulatory dues by the Financial Sector Regulator/SEBI. The right forum to initiate recovery proceedings for non-payment of Listing Fees is not NCLT. In view of above, the petition is hereby Dismissed with Liberty to the Petitioner to approach the appropriate forum and take legal steps for which he is entitled to.

Summary

Issues Involved:
1. Whether the non-payment of listing fees qualifies as an "operational debt" under the Insolvency and Bankruptcy Code (IBC), 2016.
2. Whether the National Company Law Tribunal (NCLT) is the appropriate forum to adjudicate the recovery of listing fees.

Issue-Wise Detailed Analysis:

1. Whether the non-payment of listing fees qualifies as an "operational debt" under the Insolvency and Bankruptcy Code (IBC), 2016:

The Operational Creditor argued that the non-payment of Annual Listing Fees constitutes an "operational debt" under Section 3(11) of the IBC. They contended that the Corporate Debtor defaulted on the payment of listing fees as per the Listing Agreement dated 30.11.1993, thereby committing a breach of contract. The Operational Creditor issued a Demand Notice dated 08.09.2017 as per Form 3, but the Corporate Debtor failed to pay the dues. The Operational Creditor maintained that they provided a platform for the listing and trading of the Corporate Debtor's securities, which qualifies as a service under the IBC.

The Corporate Debtor countered this argument by stating that the listing fees are not "operational debt" but "regulatory dues" as per Regulation 14 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. They emphasized that SEBI, as a quasi-judicial body, has its own mechanism for recovering such fees, including suspension of equity shares and freezing of promoter shareholding. They cited precedents from the Hon’ble NCLAT, which excluded regulatory dues from the ambit of "operational debt."

The Tribunal examined the SEBI Regulations and the Insolvency Law Committee Report, which clarified that regulatory dues are intentionally excluded from the definition of "operational debt." The Tribunal concluded that the dues in question are regulatory in nature and not operational, as they can only be recovered under the guidelines prescribed by SEBI. The Tribunal relied on the Report of the Insolvency Law Committee, which stated that regulatory dues should not be included in the definition of "operational debt."

2. Whether the National Company Law Tribunal (NCLT) is the appropriate forum to adjudicate the recovery of listing fees:

The Tribunal noted that SEBI has extensive powers to enforce its orders and recover dues, including penalties and imprisonment for non-compliance. The SEBI Circular No. CIR/CFD/CMD/12/2015 dated 30.11.2015 provides a detailed procedure for the recovery of dues, including suspension and revocation of trading of specified securities. The Tribunal observed that the SEBI Regulations govern the listing agreement and the recovery of listing fees, making the dues regulatory rather than contractual.

The Tribunal also referred to Section 14(3) of the IBC, which exempts transactions notified in consultation with the Financial Sector Regulator from the moratorium. This exemption indicates the legislative intent to prioritize regulatory dues over operational debts in insolvency proceedings. The Tribunal concluded that the right forum for initiating recovery proceedings for non-payment of listing fees is not the NCLT but the appropriate regulatory mechanism established by SEBI.

Conclusion:

The Tribunal dismissed the petition, stating that the non-payment of listing fees does not qualify as an "operational debt" under the IBC. It directed the Operational Creditor to approach the appropriate forum for recovery of the dues. The petition CP 1718/IBC/NCLT/MB/MAH/2017 was dismissed, and MA 216/2018 was disposed of accordingly.