TMI Blog2017 (9) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GCC, the payments for 70% of the total amount claimed in invoices will become due after 15 days of the presentation of the bill and for the balance 30% certified amount will become due after 10 days after submission of each individual invoice. As per Clause 2 of GCC, for the electrical and plumbing contract in West Bengal, 65% of payments will become due upon supply of materials, 20% will become due on successful installation at site and 10% will become due on successful commissioning and remaining 5% after handing over of the project. The invoices that have not been paid for the project in Pune are produced along with this Petition as Annexure 11A, the invoices, for which payment have not been done for the project in West Bengal, are produced collectively as Annexure 11B. 3. On 29.6.2016, this Corporate Debtor admitted the debt of ₹ 1,26,91,809 and 73,24,160 aggregating to ₹ 2,00,15,969 as regards work at Baner, Pune by endorsing the ledger extracts and furnishing the same to the Operational Creditor. Since payment has not been made, on 11.8.2016, the Operational Creditor issued notice u/s 434 of the Companies Act, 1956 for the work done at Baner, Pune, on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor Company for having collected huge money from the public in the name of Holiday Plans, The debtor counsel after making all submissions on merits, submitted that this case is fit to pass orders under section 9 of the Code, he might be right, if this case is taken on stand-alone basis without looking into SEBI order dated 29.2.2016. 7. When we have gone through the order dated 29.2.2016 passed by SEBI, it appears that this company along with its group companies engaged in the business of owning, developing and operating hotels, clubs and resorts across India by offering different Holiday Plans, when it came to the notice of SEBI, it had passed an ex parte interim order dated 31.7.2014 alleging that the Schemes launched and operated by the promoters of this Debtor Company are in the nature of Collective Investment Scheme (CIS) as per Section 11AA of the SEBI Act identifying that the debtor company and its directors were operating CISs without registration as required u/s 12 (IB) of the SEBI Act Regulation 3 of CIS Regulations. On appeal of the said Interim Order, Securities Appellate Tribunal (SAT) set aside the interim order directing SEBI to pass appropriate order on merits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Holiday Plans, room nights are awarded by notice no. l to investors to purchase Holiday plans and if the investors desire, the room nights can be rented out or surrendered to notice no. l. SEBI by seeing the balance sheet since 2001-02 to 2013-14, it has noticed, this company has a share capital of only ₹ 50,12,012. It is observed from the above factual situation that the money pooled from the investors are utilised for acquiring assets including hotels and resorts with the money of the investors in response to the holiday plans offered by notice no. l. SEBI further held that the company pools the money from customers and utilises for schemes and other related business activities including for paying the surrender value to the customers who surrendered the room nights. We could not detail out everything that has been said in the order saying surrender value will not be as high as this debtor company offering, but fact of the matter is, if it is booking hotels or resorts for future utility, it, in fact, will be returned after discounting such as tax and other happenings. It is said by SEBI, not by us. That the Company has not disputed the surrender value being part of the Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts and holding of shares/securities, if held in physical form, - they shall not access the securities market prohibiting this corporate debtor as well as its directors from buying, selling or othenvise dealing in securities market for a period of 4 years, - company should wind up CIS and all the monies mobilised through such schemes are refunded to its investors. Finally, SEB1 made a reference to the State Government/Local Police to register civil/criminal case against the company, its promoters, its directors and its managers/persons in charge of the business and scheme for offences of fraud cheating, criminal breach of trust and misappropriation of public funds, with a reference to Ministry of Corporate Affairs to initiate the process of winding up of the company. 10. On passing such an order on 29.2.2016, when this company and its directors filed an appeal, above this, SAT on 12.5.2017 upheld the order passed by SEBI. 11. After going through the lengthy orders of SEBI and SAT, it is clear that though company has a little share capital and with a little credit facility, raised more than ₹ 7000 crores from the investors through Holiday Plans akin to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Finally to apply this overriding effect, the provision of other law or any instrument governed by other law shall be inconsistent to this provision of this Code, then deductive reasoning can be, as long as other law or jurisdiction under other law is not inconsistent with this Code, section 238 cannot be invoked, because triggering point for application of this section is inconsistency of other law with this Code. 4. Another notable point is, it has not been said that notwithstanding anything contained in any other law for the time being in force therefore, this section 238 only speaks of the law inconsistent to the operation of this Code, not a blanket overriding effect. Before going into the effect of non-obstante clause u/s 238 against SEBI order, we believe it is pertinent to look into some of the findings given by constitutional courts to find out what effect non-obstante clause will have upon other laws. 16. In Kishorebhai Khamanchand Goyal v. State of Gujarat [2003] 12 SCC 274, the Supreme Court has laid down a test in order to determine inconsistency between two statutes: There is a presumption against repeal by implication. The reason is that the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debtor, therefore, we don't find any subject matter conflict in between the two statutes. 19. To emphasise this, we must say that overriding effect in a law is not meant for punching exercise that takes place in Boxing Ring to knockout each other and courts are not like referee in the Ring, the legislature, while bringing in a non-obstante clause, always knows existence of other laws, if at all it wants to have complete overriding effect, either repeal the other conflicting provision or at least expressly mention the provision upon which overriding effect is to be given, otherwise every time whenever this overriding effect is to apply, we have to go back to the test already laid down by Apex Court in Kishorebhai Kkamanchand Goyal case (supra). It is not a combative sport to give a treat to the people liking it - knockout is not the spirit underlying in any overriding provision; it comes into operation to do surgical attacks on the areas identified by the legislature in the objects of the enactment having overriding effect, here in this case - to maximise the value of asset and pay off the creditors, so that money again will come into circulation to do more good, it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to come to the mind of NCLT about the validity of the SEBI order when section 14 of the Code suspends all other pending proceedings - admission of petition declaring moratorium will suspend any suit or proceeding pending before any other court. If at all any such doubt comes, our answer is that such doubt has to come only when Adjudicating Authority comes to opinion that this case is fit to be admitted under either sections 7, 9 or 10 of the Code, otherwise not, because moratorium is only a sequitur to admission, when admission order itself not given, where is the occasion to come to section 14? When 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 effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the process but this device of judicial surrender did not last long. On the device of non-obstante clause, William Blackstone in his Commentaries on the Laws of England (Oxford: The Claredon Press, 1st Edn. 1765- 1769) observed that the device was ...effectually demolished by the Bill of Rights at the revolution, and abdicated Westminster Hall when James II abdicated the Kingdom (See Bennion on Statutory Interpretation, 5th Edition, Section 48). 50. Under the Scheme of modern legislation, non-obstante clause has a contextual and limited application. 51. The impact of a 'non-obstante clause' on the concerned Act was considered by this Court in many cases and it was held that the same must be kept measured by the legislative policy and it has to be limited to the extent it is intended by the Parliament and not beyond that. [See ICICl Bank Ltd. v. Sidco Leathers Ltd. [2006] 10 SCC 452 para 37 at page 466] 26. To make it complete to understand nuances in application of non-obstante clause, we have to see a finding given by Hon'ble Supreme Court in Harshad Govardhan Sondagar v. International Assets Reconstruction Co Ltd. And others (2014) 6 SCC Page-1 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor invested ₹ 90,000, obtained a receipt for an amount of ₹ 90,000 invested in Corporate Debtor Company thereafter a surrender value payment certificate has been issued by the Corporate Debtor, for that amount not being paid, this Petitioner issued notice u/s 8 of the Insolvency Bankruptcy Code, 2016 making a claim for an amount of ₹ 1,23,480 plus interest @ 18% from 30.6.2016 till 15.5.2017 for total amount of ₹ 1,43,853. 32. This Operational Creditor is none other than but one of the investors for whom SEBI has passed an order on 29.2.2016 against the Corporate Debtor for refund of the money invested by the victims (investors) including this investor by making an observation that the Corporate Debtor illegally collected funds from various investors like this investor who has filed this case before this Bench. 33. The reason for passing common order in these two company petitions is that most of the discussion made in the above Petition is also applicable in this case and the debtor in both the cases is common. 34. As to this Petitioner is concerned, first of all there is no jural relationship in between this Petitioner and the Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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