NCLT Mumbai: Penalty Imposed By SEBI During Liquidation Can Be Claimed Before Liquidator And Considered U/S 53 Of IBC

The Tribunal held that a penalty imposed by SEBI’s Adjudicating Officer during the liquidation can be claimed before the Liquidator and can be considered for the purpose of distribution of assets under Section 53 of Insolvency and Bankruptcy Code, 2016 (‘IBC’).

Background Facts:

SEBI issued a show cause notice to Sterling International Enterprises Ltd (‘Corporate Debtor’) under Rule 4(1) of the Adjudication Rules read with Section 15-I of the SEBI Act. The Resolution Professional (RP) of the Corporate Debtor informed that the Corporate Debtor has been relegated to insolvency proceedings and further the Company has gone into liquidation vide order dated 18.10.2021.

The SEBI Adjudicating Officer imposed a penalty of Rs. 2 Lakhs upon the Corporate Debtor in accordance with Section 15HA for violation of provisions of Section 12A(a), (b), (c) of SEBI Act read with Regulations 3(a), (b), (c), (d) and Regulations 4(1), 4(2)(a) and (g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations.

The SEBI via Form-C submitted its claim of Rs. 2 Lakh to the Liquidator on 14.12.2022. However, the Liquidator rejected the claim on the grounds of delay in submission of the claim. The Tribunal vide its order dated 07.02.2023 allowed an appeal condoning the delay by SEBI with a direction to the Liquidator to decide the claim of the SEBI independently.

The Liquidator on independent consideration of SEBI’s claim rejected it by stating that the liquidation proceeding commenced on 18.10.2021, and as such the claim has to be filed as of that date. It stated that the Adjudication Order on the basis of which the claim was filed dated 17.02.2022 is after the liquidation commencement date, and is thus, not admissible, as no claim existed as of 18.10.2021.

NCLT Verdict:

The NCLT Mumbai Bench held that a penalty imposed by SEBI’s Adjudicating Officer during the liquidation can be claimed before the Liquidator and can be considered for the purpose of distribution of assets under Section 53 of IBC

The Tribunal observed that in Sundaresh Bhatt, Liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes and Customs placed reliance to S.V. Kondaskar vs. V.M. Deshpande and referred to a moratorium not only under Section 14 of IBC but also under Section 33(5) of IBC. The Apex Court stated that the RP or Liquidator has an obligation to ensure that the assessment of statutory dues like taxes, fines, penalty, etc. is legally completed. Therefore, if the determination of the statutory dues is allowed during the liquidation period then filing of the claim arising out of such determination cannot be barred under IBC or else it would amount to empty formality. The only restriction the belated claimant has to face is that it cannot disturb the amount already distributed as per the waterfall mechanism under Section 53 of the IBC.

The Tribunal highlighted that it is settled law that any creditor who files a belated claim has to suffer the consequences that it is entitled to receive the amount only from the leftover assets of the Corporate Debtor and has no right to disturb the distribution already made as held in Ganeshilal Gupta vs. Bharatpur Oil Mills through Official Liquidator by the Rajasthan High Court.

In conclusion, the NCLT Bench held that the dues arising out of the Adjudication Order of SEBI which is admittedly after the liquidation commencement date i.e. 18.10.2021, can be claimed before Liquidator. Thus, the Liquidator is directed to admit the claim of SEBI amounting to Rs. 2 Lakhs in strict adherence to the provisions of Section 53 of the IBC.

Case Title: Securities Board of India vs. Mr. Vishal Ghisulal Jain, Liquidator of, Sterling International Enterprises Limite

Case No.: Company Appeal No. 12/2023 in C.P. No. (IB) N. 402 of 2018

Counsel for SEBI: Advocate Gayatri Mohite

Counsel for Liquidator: Advocate G. Aniruth

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