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TMI Blog2025 (3) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... s to intimate the depositories of non-compliance of SEBI LODR on part of any listed entity, and on receipt of such intimation, it is the obligation of the depositories to freeze or unfreeze, as the case may be, the entire shareholding of the promoter and promoter group in such non- compliant listed entity as well as all other securities held in the demat account of the promoter and promoter group. Further, due to non-compliance of various regulations of SEBI (LODR) Regulations, 2015, demat accounts of Cox and Kings Limited, Cox and Kings Financial Services Limited and Tulip Stars Hotels Ltd., were put on freeze on 19.11.2019 and 31.12.2019. Since, Liz Traders and Agents Private Limited/ Corporate Debtor was disclosed as Promoter of the above mentioned companies in the shareholding pattern filed by them, demat account of Corporate Debtor was also put on freeze on 19.11.2019 and 25.02.2020. Since the Corporate Debtor is under liquidation and Liquidator's request to defreeze the demat account has not yielded any result, the Applicant has filed the present application seeking directions against Respondent nos. 1, 2 and 3 to defreeze the demat account of the Corporate Debtor, in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t accounts would cause delay in the liquidation process, especially in the facts when the two defaulting listed entities are also under liquidation and compliances expected of them for defreezing of the Demat account of the Corporate Debtor is an impossibility.
Application allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... nt no. 4) and the same was provided by Respondent no. 4 on 02.12.2022. 5. The Corporate Debtor hold following shares: i. Tata Chemicals Limited- 5,600 ii. Tata Consumer Products Limited- 6,384 iii. The Indian Hotels Company Limited - 572 iv. The Indian Hotels Company Limited- 63 v. Cox & Kings Limited - 45,387 vi. Cox & Kings Financial Service Limited -110,209 vii. Videocon Industries Limited - 8 6. Thereafter, the Liquidator realised that the demat account of the Corporate Debtor was frozen, due to which selling the shares owned by the Corporate Debtor and transferring the proceeds therefrom such sale to the stakeholders of the Corporate Debtor was not possible. 7. In order to defreeze the demat account of the Corporate Debtor, the Applicant, vide an email dated 13.12.2022, intimated Respondent No.4, being the custodian of the demat account of the Corporate Debtor, that she had been appointed as the liquidator of the Corporate debtor by this Tribunal. Further, she attached the statement of holdings of the Corporate debtor, and requested Respondent No. 4 to defreeze the demat account of the Corporate Debtor and guide her on further steps towards transferring the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the LODR Regulations nor has it paid the fines levied for such non-compliances. The BSE has also stated that due to non-compliance of various regulations of SEBI (LODR) Regulations, 2015, promoter freezing action against Cox and Kings Limited, Cox and Kings Financial Services Limited and Tulip Stars Hotels Ltd., were taken on November 19, 2019 and February 25, 2020 respectively. Since, Liz Traders and Agents Private Limited was disclosed as Promoter of the above mentioned companies in the shareholding pattern filed by them, demat account of Liz Traders and Agents was also freezed. 13. Therefore, in such circumstances, the Applicant has filed the present application seeking directions against Respondent nos. 1,2,3 to defreeze the demat account of the Corporate Debtor, in order to enable the Applicant to take immediate custody of the shares therein and thereafter, sell the same and distribute the proceeds in the waterfall mechanism under section 53(1) of the Code, to the stakeholders of the Corporate Debtor. Applicant's submission: 14. In such circumstances, the Applicant has filed the present petition and submitted that upon accessing the above-mentioned link, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities Contracts (Regulation) Act, 1956 and LODR Regulations, which enabled and empowered the Respondent No. 5 to issue the SEBI 2020 Circular; as a corollary the actions of Respondent No. 1 to 3, of freezing the demat account of the Corporate Debtor, cannot be reasonably allowed to stand and continue after the Corporate Debtor had been admitted for insolvency and the provisions of the Code had kicked in. 18. The Applicant further submits that the process of liquidation is governed by, and happens in accordance with, the provisions of the Code. In accordance with the said provisions, when a corporate debtor is undergoing liquidation (like the Corporate Debtor in the present case), the liquidator becomes the whole and sole decision maker in respect of the corporate debtor, and all the assets of the corporate debtor also vests with the said liquidator. The said liquidator is also bound to perform all roles and responsibilities in accordance with the provisions of the Code, in order to maximize the recovery of the stakeholders of the corporate debtor through expeditious disposal of the assets belonging to the corporate debtor. Since the Applicant in the present case, being the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay the fines/penalties in question as well as undertake the necessary compliances, in accordance with the SEBI 2020 Circular. Respondent Nos. 1 to 3 are acting in complete violation of the SEBI 2020 Circular, by asking the Corporate Debtor to complete the necessary compliances (in accordance with the LODR Regulations) as well as pay the fines levied for non-compliances upon the Corporate Debtor. 20. Further submitted that 2 out of the 3 purportedly non-compliant listed entities, being Cox & Kings Financial Service Limited and Cox & Kings Limited, are themselves under liquidation. The Respondent Nos. 1 and/or 2 wish to recover any fines/penalties that may have been levied on the aforesaid entities, they are free to file their claims with the respective liquidators appointed for the said companies, in accordance with the provisions of the Code and IBBI (Liquidation) Regulations, 2016. As far as Tulip Star Hotels Limited is concerned, it does not seem to be undergoing insolvency/liquidation to the best of the knowledge of the Applicant, and Respondent Nos. 1 and 2 are free to approach Tulip Star Hotels Limited directly regarding the completion of necessary compliances (in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 33 of IBC. From the factual background stated hereinabove, it is evident that the de-mat account of the Corporate Debtor was frozen under the 2018 SEBI Circular and the 2020 SEBI Circular, even prior to a petition under Section 7 of IBC was filed against the Corporate Debtor. It was merely a continuation of pre-existing proceedings, initiated prior to the initiation of insolvency proceedings against the Corporate Debtor. Therefore, the action of Respondent No. 1 of freezing the de-mat account of the Corporate Debtor can be continued despite the Corporate Debtor being in liquidation and the said proceedings are not inconsistent with any provision of the IBC. 27. The Applicant has further claimed that it is not possible for the Applicant to comply with the provisions of the SEBI LODR as it was always an unlisted entity moreover, it is presently under liquidation. However, a mere perusal of the said e-mails addressed by the Respondent No. 1 to the Applicant, make it clear that Respondent No. 1 is not asking the Applicant to comply with the provisions of SEBI LODR, but is informing the Applicant that until the subsidiaries of the Applicant comply with the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said action of freezing was taken on November 19, 2019. c. Cox and Kings Limited: The Company failed to comply with various provisions of the SEBI LODR Regulations pursuant to which actions) (including the freezing of demat accounts of the promoters and promoter group entities) in terms of SEBI 2018 Circular were initiated against the Company as well as its promoters / promoter group entities. The action of freezing was taken on November 19, 2019. 32. As stated herein above, the action of freezing of demat account of the Corporate Debtor was taken in accordance with SEBI 2018 Circular and the same was taken much prior to the commencement of CIRP of the Corporate Debtor. 33. The Applicant's contention that Section 238 of the Code shall have an overriding effect over all other laws and any proceeding inconsistent with the provisions of the Code cannot be continued, holds no merit as the provisions Section 238 of the Code cannot be invoked when the laws are independent and operate in their own field. 34. In this regard, reliance is placed on the Order of this Hon'ble Tribunal, in the matter of "Roofit Industries Limited" dated November 15, 2017 ("Roofit" ) and in the matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude suspension of trading of the companies, levying of fines and penalties and also the freezing of the demat accounts of their promoter and promoter group. Pertinently, the CD is the part of the promoter and promoter group of three companies that are listed on the Stock Exchanges and were found by the Stock Exchanges to be non- compliant with LODR Regulations. Also submitted that the sole contention of the Applicant which pertains to the answering Respondent is that the provisions of SEBI Act under which the LODR Regulations and the SOP Circular have been framed, are inapplicable in view of the non-obstanate clause of Section 238 of Insolvency and Bankruptcy Code, 2016. 39. In this limited respect, the answering Respondent submits that the IBC and the SEBI Act are two separate and distinct enactments. While the former solely pertains to the issues arising out of or in relation to Insolvency and Liquidation, the latter pertains to the interest of the investors and seeks to promote the orderly development of the Securities Market. Accordingly, the provisions of IBC cannot in any form or manner be construed to have an overriding effect upon the provisions of SEBI Act. 40. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate Debtor expeditiously and maximise the recovery. 48. Now coming to the objection of jurisdiction that an application under Section 60(5) of IBC can only be entertained in cases arising solely out of or relating to the insolvency proceedings. Therefore, any issue de hors the insolvency proceedings cannot be adjudicated upon before this Tribunal. 49. In relation to this, we would like to refer the provision of Section 60(5) of IBC which provides that this tribunal shall have jurisdiction to entertain or dispose of any application, any claim or any question of priority or question of law of facts as mentioned therein. For ready reference Section 60(5) is reproduced below: - "Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of - (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor would not serve the intended purpose, as it is blocking the fund of creditors and not the investors. 54. The case referred by the Respondents Roofit Industries Limited MA/373/2017 in CP/1055/I&BP/2017 dated 15.11.2017 and in the matter of Shobha Limited and Sadashiv Lazman Jogalekar v. Pancard Clubs Limited CP/593 & CP108/I&BP /NCLT/MAH/2017 dated July 29, 2017 it has been expressly held that there is no conflict between the Securities and Exchange Board of India Act, 1992 and the Code because the SEBI deals with the investor protection whereas the Code deals with protection of the creditors and hence there is no core conflict between the two statutes. In the present case, the shares need to be sold, and the amount realised from them belongs to the Creditors, not the investors. The investor in the present case is the Corporate Debtor, who is in liquidation. Therefore, the amount realised shall be distributed as per Section 53 of the Code. 55. Further, in the matter Shiv Charan v. Adjudicating Authority, WP (L) No. 9943 of 2023 & WP (L) No. 29111 of 2023, decided on March 01.03.2024, the Hon'ble High Court of Bombay held that Section 32A(2) of the IBC, 2016 provides significa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts at hand, we are not analysing it further." [Bold for Emphasis] 56. Therefore, the protection of the corporate debtor's property from attachment and restraint in proceedings related to offenses committed before the initiation of the CIRP continues even during the liquidation process, where the successful sale of assets is affected. In the present case, the freezing of demat account is obstructing the Liquidator from selling the shares and obtaining their best value. In light of the aforesaid judgement, such attachment and restraint cannot be allowed to be continued during the proceedings of liquidation under IBC. 57. The other objection that no time limit is prescribed for liquidation proceedings is not correct. Similar to CIRP, the Liquidation is also a time bound process. This is evident from Regulation 44 of the Liquidation Regulations, which states that the liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date. If the liquidator fails to liquidate the corporate debtor within one year, they must make an application to the Adjudicating Authority to continue such liquidation, along with a report explain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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