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2023 (9) TMI 1692 - HC - SEBISupremacy of provisions of the Insolvency and Bankruptcy Code 2016 over the provisions of SEBI Act - HELD THAT - Provisions of the Code 2016 prevail over the provisions of the Act 1961 after thoroughly considering the language used in Section 238 of the Code 2016. In the light of the above settled legal position this point is answered holding that the provisions of the Code 2016 shall prevail over the provisions of the SEBI Act 1992. See M/s. Innoventive Industries Ltd. 2017 (9) TMI 58 - SUPREME COURT . Whether there are any moratorium orders that are passed in respect of all the petitioners herein under the provisions of the Code 2016 and the Act 1920. If any such orders are passed the same would come in the way of the respondents in continuing the proceedings under Section 28A of the SEBI Act 1992? -Petitioners for the reasons best known to them neither disclosed the stage of such liquidation proceedings nor stated as to how the Director of a Company under liquidation can represent petitioner No.6 when admittedly a liquidator was appointed for the said company. It is settled legal position that once a Company is ordered to be wound up and a liquidator is appointed the said Company can sue or be sued represented by its liquidator alone but not the original Directors of the said Company. Therefore the very filing of this Writ Petition by petitioner No.6 represented by its Director/former Director is incompetent and the same is liable to be dismissed insofar as petitioner No.6 is concerned on this ground alone. Whether the liability to pay penalty amount covered by the impugned certificate would fall within the meaning of liability to pay fine imposed by a Court or Tribunal as provided under clause (a) of sub-section (15) of Section 79 of the Code 2016 or not? - What is excluded in terms of sub-section (15) of Section 79 of the Code 2016 is only the liability to pay fine imposed by a Court or Tribunal. The word fine in common parlance is construed as the one imposed after concluding the adjudication process in a criminal proceeding. Whereas the penalty is not necessary in a criminal proceeding but the same can be the one imposed pursuant to a contractual liability or as a result of a failure to comply with a statutory provision. Hon ble Apex Court has considered the word penalty its meaning and its effect in various decisions in the cases of Shiv Dutt Rai Fateh Chand v. Union of India 1983 (5) TMI 31 - SUPREME COURT as noted hereinabove and on application of the same to the facts of the case on hand it is to be seen whether the penalty that is imposed on the petitioners and sought to be recovered through the impugned certificate will come within the meaning of fine as provided under clause (a) of sub-section (15) of Section 79 of the Code 2016 or not. Whether the order passed by the adjudicating authority under Section 15I of the SEBI Act 1992 would fall within the meaning of the order passed by a Court or Tribunal? - Sub-section (2) of Section 15I of the SEBI Act 1992 further confers the power on the adjudicating officer to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document and further empowers the adjudicating officer to impose a penalty on such person if he fails to appear or produce document as required by the adjudicating officer. Thus it is very much clear that the adjudicating officer while discharging his duties under Section 15I of the SEBI Act 1992 was conferred with all the powers satisfying all the facets of a judicial forum and therefore this Court has no hesitation to hold that the adjudicating officer under Section 15I of the SEBI Act 1992 would definitely fall within the meaning of the Tribunal/Court for the purpose of clause (a) of sub-section (15) of Section 79 of the Code 2016. Penalty imposed and sought to be recovered from the petitioners by issuing the impugned certificate fall within the meaning of Fine excluded under clause (a) of sub-section (15) of Section 79 of the Code 2016 and as such the interim moratorium imposed under Section 96 has no application to the penalty sought to be recovered under the impugned certificate. Further the interim moratorium also stated to have already come to an end. This Court does not find any merit in the Writ Petition and the same is accordingly dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are: (i) Whether the provisions of the Insolvency and Bankruptcy Code, 2016 (the Code, 2016) override the provisions of the Securities and Exchange Board of India Act, 1992 (SEBI Act, 1992) in the context of recovery of penalties imposed under the SEBI Act; (ii) Whether moratorium orders under the Code, 2016 or the Provincial Insolvency Act, 1920 (Act, 1920) have been passed in respect of all petitioners, and if so, whether such moratoriums bar enforcement of the recovery certificate issued under Section 28A of the SEBI Act, 1992; (iii) Whether the penalty amount sought to be recovered under the impugned certificate qualifies as a "liability to pay fine imposed by a Court or Tribunal" under clause (a) of sub-section (15) of Section 79 of the Code, 2016, thus constituting an excluded debt not subject to moratorium protections. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Whether the Code, 2016 overrides the SEBI Act, 1992 The Court examined Section 238 of the Code, 2016, which explicitly states that the provisions of the Code shall have effect notwithstanding anything inconsistent in any other law for the time being in force. This provision grants overriding effect to the Code over other statutes. The Court relied on authoritative precedents, including the Supreme Court's decision in the case of M/s. Innoventive Industries Ltd., which affirmed that Section 238 is categorical and that the Code prevails over inconsistent laws. The Delhi High Court's ruling in Principal Commissioner of Income Tax v. Monnet Ispat and Energy Ltd., which was upheld by the Supreme Court, further reinforced this principle, holding that the Code's moratorium provisions override other statutes, including the Income Tax Act. Applying these precedents, the Court held that the Code, 2016, prevails over the SEBI Act, 1992, in case of any conflict, thereby answering this point in favor of the petitioners' contention that the Code's provisions should override SEBI Act enforcement mechanisms. Issue (ii): Existence and impact of moratorium orders under the Code, 2016 and Act, 1920 The petitioners contended that moratoriums issued under the Code, 2016, specifically under Section 96 (interim moratorium), and under the Act, 1920, stay all legal proceedings against the debtor, including enforcement of recovery certificates. The Court noted that only petitioner No.1 had an interim moratorium order dated 14.07.2021 issued by the National Company Law Tribunal (NCLT), Hyderabad, under Section 96 of the Code, 2016. This moratorium, by operation of Section 96(1)(b), stays all legal actions or proceedings in respect of any debt against the corporate debtor. However, no moratorium orders had been passed for petitioner Nos.2 to 6. The petitions filed by petitioners Nos.3 and 4 under the Act, 1920, were pending without any orders or actions initiated. Petitioner No.5's insolvency application under Section 10 of the Code, 2016, was pending admission without any moratorium. Petitioner No.6 was already wound up by an order dated 21.08.2018, and the Court emphasized that only the liquidator, not the director, can represent a company under liquidation, rendering petitioner No.6's participation incompetent. Consequently, the Court held that the interim moratorium under Section 96 of the Code, 2016, applies only to petitioner No.1 and bars proceedings against it, subject to the nature of the debt. The absence of moratoriums for the other petitioners means they cannot claim protection against enforcement of the recovery certificate. The Court also dismissed the writ petition filed on behalf of petitioner No.6 on grounds of improper representation. Issue (iii): Whether the penalty amount is an excluded debt under Section 79(15)(a) of the Code, 2016 Section 79(15)(a) of the Code, 2016, defines "excluded debt" to include "liability to pay fine imposed by a Court or Tribunal." The respondents argued that the penalty amount imposed under Sections 15G and 15HA of the SEBI Act, 1992, is a fine and thus excluded from the moratorium provisions. The Court undertook a detailed examination of the nature of the penalty imposed. It noted that the penalty was imposed by an adjudicating officer under Section 15I of the SEBI Act, 1992, who conducts an enquiry after giving the person an opportunity to be heard and has powers akin to a judicial forum, including summoning witnesses and documents. Therefore, the adjudicating officer qualifies as a "Court or Tribunal" for the purposes of Section 79(15)(a). The Court distinguished between "penalty" and "fine," recognizing that while the term "fine" is generally associated with criminal proceedings, "penalty" is a broader term that can arise from failure to comply with statutory provisions, including civil adjudications. The Court referred to several Supreme Court decisions interpreting the terms "penalty" and "fine," including Shiv Dutt Rai Fateh Chand v. Union of India and others, which clarified the scope and effect of penalties. Applying these principles, the Court concluded that the penalty imposed under the SEBI Act is effectively a fine imposed by a Tribunal and thus constitutes an excluded debt under Section 79(15)(a) of the Code, 2016. Consequently, the moratorium provisions, including the interim moratorium under Section 96, do not apply to this penalty amount, and enforcement proceedings under Section 28A of the SEBI Act can continue. Additional Findings: The Court also noted that the interim moratorium imposed on petitioner No.1 had already come to an end, further negating any stay on enforcement proceedings. Regarding petitioners Nos.3 and 4, the Court found no merit in their claims as no moratorium orders or substantive actions had been taken in their insolvency petitions under the Act, 1920. Petitioner No.2 had no moratorium order, and the insolvency petition filed by it was yet to be admitted, thus not attracting moratorium protections. 3. SIGNIFICANT HOLDINGS "Section 238 of the Code is categorical that the Code will apply, notwithstanding anything inconsistent therewith contained in any other law for the time being in force." "The adjudicating officer under Section 15I of the SEBI Act, 1992, was conferred with all the powers satisfying all the facets of a judicial forum and therefore, this Court has no hesitation to hold that the adjudicating officer under Section 15I of the SEBI Act, 1992, would definitely fall within the meaning of the Tribunal/Court for the purpose of clause (a) of sub-section (15) of Section 79 of the Code, 2016." "The penalty imposed and sought to be recovered from the petitioners by issuing the impugned certificate fall within the meaning of 'Fine' excluded under clause (a) of sub-section (15) of Section 79 of the Code, 2016 and as such, the interim moratorium imposed under Section 96 has no application to the penalty sought to be recovered under the impugned certificate." Core principles established include:
Final determinations:
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