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SEBI has moved the Supreme Court against an order by the National Company Law Tribunal (NCLT) in the matter of collective investment schemes (CIS) where the tribunal ruled that the Indian Bankruptcy Code (IBC) will prevail over the SEBI Act. The SC has issued a notice to the parties involved and the next hearing is on Monday, according to lawyers present in the Court said.
The Principal Bench of the NCLT presided by MM Kumar and SK Mohapatra last month had ordered the release of assets belonging to corporate debtor HBN Dairies and Allied, which were attached as part of execution proceedings by SEBI.
The HBN Dairies case was admitted by the NCLT as investors cited delay in getting back their money. Nearly a year before HBN was admitted for Corporate Insolvency Resolution Process (CIRP), SEBI had passed asset attachment order after the adjudication of order of 2015. Yet recovery lagged. The NCLT has said it would henceforth be the mandate of the resolution professional (RP) to take action.
The NCLT found Sections 11 & 11B of SEBI read with Regulation 65 of (CIS) Regulations, 1999, to be in direct conflict with many IBC sections. The NCLT order reaffirms IBC’s supremacy over other laws that could hurt insolvency proceedings.
According to legal experts, SEBI’s low success rate in disposing of assets attached under collective investment scheme (CIS) fraud cases and returning money to investors could have prompted the NCLT’s move. SEBI has attached assets worth thousands of crores amassed under CIS in the past seven to eight years but its disposal is abysmally slow, experts say.
The NCLT said, “SEBI is directed to de-attach properties of HBN and hand over its possession to the resolution professional to conduct CIRP expeditiously, in accordance with the timeline in the Code.”
Vidisha Krishnan, Partner, MV Kini & Co, said, “The overriding provisions of the IBC Act will prevail over the SEBI order and will also curtail any action by the BSE in dealing with the shares of corporate debtors or any other assets. It will restrict even the execution of any order by any other court and this will block the recovery under SEBI order for the duration of the moratorium. A resolution professional is required to keep the corporate debtor functioning as a “going concern” and any action by SEBI/ BSE which hampers that objective will be against the IBC objective.”
While the Securities Appellate Tribunal had upheld SEBI’s attachment order, experts have a different take on the conflict between the two tribunals. The question is one of disposing CIS assets expeditiously, they say.
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