2024 (3) TMI 1183 - HC - SEBI

Recovery proceedings by SEBI - Maintainability of provisions of IBC over the provisions of the SEBI Act - notice was challenged by the appellants on the ground that the same cannot be enforced as the proceedings under the Insolvency and Bankruptcy Code, 2016 and the provisions of the Provincial Insolvency Act, 1920 initiated against the appellants are pending and the orders of interim moratorium have been passed - penalty imposed and sought to be recovered from the appellants by issuing the impugned certificate fall within the meaning of fine , which is excluded under clause (a) of sub-section (15) of Section 79 of IBC and therefore, the interim moratorium order issued in favour of the appellant No. 1 has no application to the penalty sought to be recovered under the impugned certificate HELD THAT - Once an application is admitted under Section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of 180 days beginning with the date of admission of the application or on the date the adjudicating authority passes an order on the repayment plan under Section 114, whichever is earlier. In the instant case, so far as appellant No. 1 is concerned, the period of moratorium commenced on 04.02.2022 which cease to operate on expiry of 180 days i.e., 04.08.2022. Similarly, in respect of appellant No. 2, the period of moratorium commenced on 13.12.2022 and the same expired on efflux of 180 days on 13.06.2023. The writ petition was heard by the learned Single Judge on 19.09.2023. Thus, it is evident that no moratorium was in force in favour of the appellants. Therefore, respondents No. 1 and 2 were justified in issuing the impugned certificate under Section 28A of the SEBI Act. It is pertinent to note that the provisions of Chapter IV of IBC, namely Sections 121 to 124 do not apply to the facts of the case as the application under Section 122 was not filed when the Certificate under Section 28A of the SEBI Act was issued. The issue whether the impugned levy is a fine or a penalty is also not required to be decided in the facts and circumstances of the case and we keep the same open to be adjudicated in an appropriate proceeding.

Summary

Issues Involved:
The judgment involves the challenge against the order of Securities Exchange Board of India (SEBI) directing payment of a penalty under Section 28A of the SEBI Act and the Income Tax Act, 1961. The main issues include the applicability of the Insolvency and Bankruptcy Code, 2016 (IBC) and the distinction between penalty and fine under the relevant laws.

Summary of Judgment:

Issue 1: Challenge against SEBI's Order:
The appellants and respondents filed a writ petition against SEBI's order imposing a penalty, which was dismissed. The impugned certificate for payment of the penalty was challenged on the grounds of pending insolvency proceedings under IBC and the 1920 Act.

Issue 2: Applicability of IBC Over SEBI Act:
The learned Single Judge held that IBC overrides SEBI Act, but noted that no interim moratorium orders were in favor of the appellants except for one appellant. The penalty sought to be recovered was considered as a 'fine' under IBC, not covered by the moratorium.

Issue 3: Penalty vs. Fine Distinction:
The appellants argued that the penalty imposed by SEBI is different from a fine under IBC. They contended that the penalty was levied for violations under SEBI Act's Chapter VIA, not as a fine. Reference was made to legal definitions and Supreme Court decisions to support this argument.

Issue 4: Moratorium under IBC:
The Court analyzed the provisions of interim moratorium under IBC Sections 96 and 101, concluding that no moratorium was in effect during the relevant period for the appellants. Therefore, SEBI was justified in issuing the impugned certificate for penalty recovery.

Conclusion:
The Court found no grounds to differ with the Single Judge's view, dismissing the appeal. The issue of whether the penalty is a fine or not was left open for future adjudication. The judgment emphasized the absence of a moratorium during the relevant period and upheld SEBI's right to recover the penalty.