Sebi moves SC against NCLT order on IBC overriding regulators' laws

NCLT order barred Sebi from recovering money from a firm against which insolvency petition was admitted

The Supreme Court on Wednesday agreed to hear a plea by the Securities and Exchange Board of India (SEBI) against an order by the National Company Law Tribunal (NCLT), which had held that the laws of Insolvency and Bankruptcy Code (IBC) would reign over the markets regulator’s laws. The top court, while agreeing to hear the case, asked that the present status quo be maintained in the case.

The case dates back to 2015, when the SEBI had held that HBN Dairies & Allied Limited had illegally collected close to Rs 1,136 crore from various shareholders under unauthorised ‘Collective Investment Schemes’. The SEBI orders were upheld by the Securities Appellate Tribunal (SAT), following which in 2017, the markets regulator ordered attachment of immovable properties of HBN Dairies in order to sell them off and recover money to pay off the investors.

However, frustrated by long delays in recovery, a group of about 36 unit holders approached the Principal Bench of NCLT at New Delhi, which admitted an insolvency petition against the company. The NCLT bench held that as Section 14 of IBC would prevail over Section 28 A of the SEBI Act, SEBI would not be able to recover any money from HBN Dairies or take any coercive action against the company.

Section 14 of the IBC deals with moratorium period kicking in once an insolvency petition is filed against a particular corporate debtor, while Section 28 (A) of SEBI Act deals with recovery of money from a company, by selling its movable or immovable properties, among others.

The NCLT bench also held that since an insolvency petition was admitted against the company and a moratorium had kicked in, SEBI would not be able to sell the assets of the company to recover any money. The NCLT order was later affirmed by the National Company Law Appellate Tribunal (NCLAT). The NCLAT, however, held that SEBI was free to take action against the individuals at the helm of affairs of the company including the directors and other shareholders.  

After the NCLAT upheld the order, SEBI approached the top court with a plea that the laws of the market regulator be allowed to go hand in hand with IBC. SEBI has also cited various observations of NCLT benches in which it was held that IBC and SEBI laws would not override each other. SEBI has also challenged the NCLAT’s orders claiming that it has no jurisdiction to issue any judicial order or directions which are in conflict to SEBI, or SAT, any other statutory authorities formed under an independent central legislation.

“The NCLAT also completely ignored the fact that the corporate debtor in the present case is in a business activity which was in complete violation of laws and therefore no resolution of such corporate debtor can be undertaken under the IBC. Insolvency laws are only for the resolution of corporate debtor engaged in lawful activities,” a person close to the developments said.

2015 
 

Sebi finds HBN Dairies guilty of collecting funds illegally 

Company moves SAT against Sebi order; SAT upholds the same

2017

Attachment of HBN Dairies’ immovable properties ordered by markets regulator

2018
 

Some investors move NCLT seeking intiation of insolvency proceedings

NCLT admits company under insolvency, says IBC norms will reign over Sebi regulations

2019
 

NCLAT upholds NCLT order, Sebi moves SC seeking clarification