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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 ..... ("IBC, 2016") against National Stock Exchange of India Limited (NSE/Respondent No.1), Bombay Stock Exchange Limited (BSE/Respondent No.2), National Securities Depository Limited (NSDL/Respondent No.3), India Infoline Finance Limited (IIFL/Respondent No.4) and the Securities and Exchange Board of India (SEBI/Respondent No.5), seeking following reliefs: a.) That this Hon'ble Tribunal be pleased to direct the Respondent Nos. 1,2, and 3 to defreeze the demat account of the Corporate Debtor instantly, so that the custody of the shares lying in the aforesaid demat account (presently amounting to Rs. 1.02 Crs.) can be taken with immediate effect by the Applicant and thereafter, the same can be sold and the proceeds can be distributed in waterfall mechanism, as provided under section 53(1) of the Code, to the stakeholders of the Corporate Debtor; b.) This Hon'ble Tribunal be pleased to direct Respondent No. 4 to extend its co-operation to the Applicant, including (without limitation) by ensuring that the trading account in the name of the liquidator of the Corporate Debtor is active, so that the shares lying in the demat account of the Corporate Debtor can be sold expeditiously, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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 shares. 8. However, the Respondent no. 4 failed to provide any solution despite of several follow up emails. Thereafter, the Applicant sent an email dated 09.01.2023 to Respondent no.3, highlighting the issue regarding the defreezing of the demat account of the Corporate Debtor. The Applicant received a response from Respondent No. 3 on 13.01.2023, stating that it had provided the necessary clarification in respect of the frozen demat account of the Corporate Debtor. 9. The Applicant, on receiving the aforesaid response from respondent No.3, continued to follow with Respondent No. 4 in connection with the process of defreezing the demat account of the Corporate Debtor. 10. Accordingly, the Respondent no. 4, in its email dated 18.01.2023, addressed to its internal team, had informed that the demat account of the Corporate debtor had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ody 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 apparent that the exercise required to be undertaken for revocation of suspension of the Demat Accounts can only be done by the non-compliant Company and the same cannot be undertaken by the Applicant herein. 15. The Applicant further submitted that the SEBI 2020 Circular, had superseded SEBI CIR.SEBI/HO/CFD/CMD/CIR/P/2018/77 dated 03.05.2018. The SEBI 2020 Circular states that the depositories, on receipt of intimation from the concerned recognized stock exchange, shall freeze or unfreeze, as the case may be, the entire shareholding of the promoter(s) in such non-compliant listed entity as well as all other securities held in the demat account of the promoter(s). Further, the said circular also stipulated that if a non-complaint entity is listed on more than one recognized stock exchange, the concerned recognized stock exchanges sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 liquidator of the Corporate Debtor, is not being allowed to carry out her roles and responsibilities in accordance with the provisions of the Code, due to the aforesaid SEBI 2020 Circular which is in clear conflict with the provisions of the Code, the Applicant humbly submits that the provisions of the Code (especially the provisions concerning the roles and responsibilities of the liquidator) will override the provisions of SEBI 2020 Circular, in terms of Section 238 of the Code. Accordingly, the Applicant submits that the SEBI 2020 Circular will stand superseded by the provisions of the Code when the Corporate Debtor is undergoing liquidation, and the Respondent Nos. 1 to 3 have no powers to freeze, or continue with the freeze, over the demat account of the Corporate Debtor, once the Corporate Debtor had been admitted into insolvency b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the LODR Regulations) and payment of fines levied for non-compliances. Respondent No. 1/NSE Submissions: 21. The Respondent no. 1 has submitted that the Applicant has filed the captioned Interim Application under Section 60(5) of the Code. 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. 22. Further, under Section 35(1)(k) of IBC read with Section 33(5) of IBC, the liquidator is empowered to institute suit/ proceedings before appropriate forum on behalf of the corporate debtor, with the permission of this Tribunal. Hence, the liquidator is empowered to institute proceedings before any appropriate forum and it is not necessary for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, 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 SEBI LODR the de-mat account of the Corporate Debtor would not be de-frozen. Respondent No. 2/BSE Submissions: 28. The Respondent no. 2 has submitted that the action(s) taken by the Exchange were in exercise of the powers conferred on the Exchange under the provisions of SEBI LODR Regulations and the circulars issued by SEBI, from time to time. 29. Further submitted that the Hon'ble Supreme Court in the matter of Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors. (Civil Appeal No. 9241 of 2019), inter alia, observed that "...NCLT and NCLAT are required to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and for when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor". The action(s) including freezing of demat account of the Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of "Shobha Limited and Sadashiv Lazman Jogalekar v. Pancard Clubs Limited" dated July 29, 2017 ("Pancard"), wherein it was 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. 35. It is further submitted that as per the proviso of Section 14 read with Section 33 of the Code, the moratorium is revoked as soon as the order for the liquidation is passed by the Hon'ble National Company Law Tribunal. Furthermore, as per the provisions of Section 33 of the Code, when the Corporate Debtor goes into liquidation, no suit or legal proceedings shall be instituted by or against the corporate debtor, however it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins 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 view of this, the Respondents prayed to set aside the present Application. Observations and Findings: 41. Heard the Parties for both the sides and perused the record. 42. SEBI issued a circular in order to ensure effective enforcement of the SEBI LODR. Further, it was the obligation of all the recognized stock exchanges 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. 43. Further, due to non-compliance of various regulations of SEBI (LODR) Regulations, 2015, demat accounts of Cox and Kings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code." 50. It can be seen from the plain reading of the aforesaid provisions that this Tribunal has powers to entertain and dispose of any application or proceedings against the Corporate Debtor including any question of priority or question of law arising out of insolvency resolution or liquidation proceedings of the Corporate Debtor as has been specifically mentioned in Clause 'a' and Clause 'c' of the aforesaid Section. 51. In the judgement of Gujrat Urja Vikas Nigam Limited v Amit Gupta and Ors. [(2021) 7 SCC 209], the Hon'ble Supreme Court has in the relevant para held as under: "65. ...Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor, 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 significant protection to the property of the corporate debtor from attachment and restraint in proceedings related to offenses committed before the initiation of the Corporate Insolvency Resolution Process ("CIRP"). Once a resolution plan is approved under Section 31, and the change in control and management is implemented as stipulated in Section 32A(1), the property of the corporate debtor is immune from further prosecution. This immunity extends to any action against the property, including attachment, seizure, retention, or confiscation under applicable laws. Furthermore, Section 32A(2) grants similar immunity in cases where assets are sold to an unrelated buyer in liquidation proceedings, ensuring that the purchaser can acquire the assets free from legal encumbrances, thereby maximizing the sale value. The relevant paras of the said order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation 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 explaining why the liquidation has not been completed. 58. Regarding the contention that any suit or other legal proceeding may be initiated by the liquidator, on behalf of the Corporate Debtor, with the prior approval of this Adjudicating Authority, we are of the considered view that this is a procedural lapse. Additionally, the present application is currently before this Adjudicating Authority and the application has been argued at length from both the sides, and therefore, there would have no reason not to grant such permission separately under proviso to Section 33(5) of the Code. 59. In view of the above, we direct the Respondent No. 1, 2 and 3 to defreeze the demat account of the Corporate Debtor. Further Respondent no. 4 is directed to extend its co-operation to the Applicant by ensuring the proper functioning of the trading account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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