Securities Appellate Tribunal
Bhushan Power & Steel Ltd. vs Sebi on 28 June, 2023
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 13.06.2022
Date of Decision : 28.06.2022
Misc. Application No. 899 of 2022
(Stay Application)
And
Appeal No. 534 of 2022
Bhushan Power & Steel Ltd.
4th Floor, A-2, NTH Complex,
Shaheed Jeet Singh Marg,
Qutub Institutional Marg,
New Delhi - 110067. ..... Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Pesi Modi, Senior Advocate with Mr. Kunal Katariya, Mr. Pulkit
Sukhramani, Ms. Vidhi Jhawar, Mr. Deepank Anand, Advocates i/b
JSA Advocates & Solicitors for the Appellant.
Mr. Suraj Chaudhary, Advocate with Ms. Nidhi Singh, Ms. Deepti
Mohan, Mr. Nishin Shrikhande, Ms. Hubab Sayyed, Advocates i/b
Vidhii Partners for the Respondent.
2
CORAM : Justice Tarun Agarwala, Presiding Officer
Ms. Meera Swarup, Technical Member
Per : Justice Tarun Agarwala, Presiding Officer
1.The present appeal has been filed against the order dated April 13, 2022 passed by the Adjudicating Officer (hereinafter referred to as 'AO') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') imposing a penalty of Rs. 46 lakh to be paid jointly and severally by the appellant alongwith 22 other noticees under Section 15HA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') for violating the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations').
2. The facts leading to the filing of the present appeal is, that Unisys Softwares and Holding Industries Ltd. (hereinafter referred to as 'Unisys') noticees nos. 1 made a preferential allotment to noticees nos. 2 to 8. It is alleged that Unisys had given financial assistance to the preferential allottees to buy its own shares allotted to them on a preferential basis. The allegation against the appellant was that they were connected to Unisys through fund transfers and that the 3 appellant was a conduit which assisted Unisys to transfer funds to preferential allottees and was a part of the scheme of the alleged fraudulent preferential allotment.
3. Based on the investigation, a show cause notice dated August 5, 2019 was issued pursuant to which the impugned order was passed on April 13, 2022.
4. Prior to the issuance of the show cause notice dated August 5, 2019, Punjab National Bank in July 2017 filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'IBC') on account of defaults committed by the appellant. The said petition was admitted by the National Company Law Tribunal (hereinafter referred to as 'NCLT') and a moratorium was granted on July 26, 2017 under Section 14 of the IBC. Subsequently, a resolution plan was filed on February 8, 2018 which was approved by NCLT by an order dated September 5, 2019. Appeal against the order of NCLT was dismissed by National Company Law Appellate Tribunal (hereinafter referred to as 'NCLAT') on February 17, 2020.
5. We have heard Mr. Pesi Modi, the learned senior counsel with Mr. Kunal Katariya, Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar, Mr. Deepank Anand, the learned counsel for the appellant and Mr. Suraj 4 Chaudhary, the learned counsel with Ms. Nidhi Singh, Ms. Deepti Mohan, Mr. Nishin Shrikhande, Ms. Hubab Sayyed, the learned counsel for the respondent.
6. In our opinion, the entire proceedings initiated by the AO pursuant to the show cause notice dated August 5, 2019 was wholly illegal and in violation of various provisions of the IBC especially Sections 14 and 31.
7. In our opinion, the controversy involved in the present appeal is squarely covered by a decision of the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Ltd. vs. Satish Kumar Gupta [(2020) 8 SCC 531] wherein the Hon'ble Supreme Court held :-
"107. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority / Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over 5 and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgment must also be set aside on this count."
8. The aforesaid decision was considered by this Tribunal in Monnet Ispat and Energy Ltd. vs. SEBI Appeal No. 238 of 2020 decided on October 29, 2020.
9. This Tribunal considered the provisions of Section 31 of the IBC which reads as under :-
"9. In this regard Section 31(1) of the IBC reads as follows :-
"31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub- section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan:
PROVIDED that the Adjudicating Authority shall, before passing the order for approval of 6 resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation."
"10. On a perusal of Section 31(1) of the IBC, it is apparently clear that the resolution plan is binding not only on all creditors but also on central government, state government or local authority to whom statutory dues are owed. The immunities applicable to the appellant will be in accordance with the approved resolution plan."
10. This Tribunal relying upon the decision of the Hon'ble Supreme Court in Essar Steel India Ltd. (supra) held :-
"18. In the light of the aforesaid, we are of the opinion that once a resolution plan has been approved it becomes binding on all creditors including the government and local authorities including the respondent under Section 31(1) of the IBC. It is no longer open to the respondent to issue a show cause notice or adjudicate and pass an order of penalty upon the appellant. Consequently, the impugned order cannot be sustained and is quashed. The appeal is accordingly allowed with no order as to costs."
11. This Tribunal held that once a resolution plan has been approved, it becomes binding on creditors including government and local authorities including respondent SEBI under Section 31(1) of the IBC and, therefore, it was no longer open to the respondent to adjudicate or pass an order of penalty upon the appellant. 7
12. The aforesaid decision of this Tribunal in Monnet Ispat and Energy Ltd. (supra) was subsequently followed in Alok Industries Ltd. vs. SEBI Appeal No. 300 of 2020 decided on December 1, 2020, Raj Oil Mills Ltd. vs. SEBI Appeal No. 54 of 2019 decided on February 15, 2021, ArcelorMittal Nippon Steel India Ltd. vs. SEBI Appeal No. 338 of 2022 decided on July 1, 2022.
13. Section 32A came into effect from December 28, 2019 which is extracted hereunder :-
Section 32A. Liability for prior offences, etc. "(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not --
(a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a 8 complaint to the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled:
Provided further that every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section.
(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not --9
(i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.
Explanation. -- For the purposes of this sub-section, it is hereby clarified that,--
(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process."10
14. A perusal of the aforesaid indicates that IBC expressly mandates that the liability of a corporate debtor for any offence committed prior to the commencement of the Corporate Insolvency Resolution Process (hereinafter referred to as 'CIRP') shall cease and cannot be prosecuted after the resolution plan is approved, if the plan results in the change in the management and control of the corporate debtor. In the instant case, we find that there has been a change in the management and control of the corporate debtor and, consequently, the penalty could not be imposed.
15. The contention of the respondent is that SEBI was entitled to issue a show cause notice and was entitled to crystalize the claim and file the same before the resolution professional or the Liquidator even after the passing of an order of moratorium under Section 14 or a resolution plan being crystalized under Section 31 is patently erroneous. Relying on the decision of the Hon'ble Supreme Court in the matter of Sundaresh Bhatt, Liquidator of ABG Shipyard vs. Central Board of Indirect Taxes and Customs [(2021) 9 SCC 657] is patently erroneous. In our opinion, the said decision is clearly distinguishable since in that case an order was passed to liquidate the corporate debtor and the Liquidator was inviting claims from the creditors, at which stage, Section 31 and 31A of the IBC did not 11 apply. Further, the issue in that case was whether the customs department could claim the customs duty by releasing the goods of corporate debtor or whether they were required to stand in line with other creditors by filing their claims for customs duty. The Hon'ble Supreme Court held that the customs department in such liquidation proceedings could crystalize its claim and then stand in the line of other creditors for distribution. In the instant case, the resolution plan was approved by the committee of creditors and NCLT approved the same which has attained finality and consequently, Section 31 and 32A are clearly applicable. Once the resolution plan has been approved, no order can be passed by the respondent against the appellant by virtue of the "clean slate principle" as laid down by the Hon'ble Supreme Court in the Essar Steel India Ltd (supra).
16. In view of the aforesaid, we are of the opinion that the AO has no power to issue the show cause notice or adjudicate the contravention under the SEBI laws after the moratorium order was issued and the resolution plan was filed and approved by the Tribunal.
17. Consequently, the impugned order in so far as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed. In the circumstances of the case, parties will bear their own costs. 12
18. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member PRAMILA Digitally signed by 28.06.2023 TANAJI PRAMILA TANAJI MISAL PTM Date: 2023.06.28 MISAL 18:26:20 +05'30'