Securities Appellate Tribunal quashes Sebi order to impose Rs 20 lakh penalty on DHFL
The Securities Appellate Tribunal (SAT) has quashed an order by the Securities and Exchange Board of India (Sebi) to levy a penalty of Rs 20 lakh against Dewan Housing Finance Limited (DHFL) citing moratorium period under the Insolvency and Bankruptcy Code.
The SAT in its order has said that pursuant to a moratorium declared under section 14 (of the IBC) the institution of suits or proceedings against the corporate debtor is prohibited or continuation of a suit or proceedings.
“…where a moratorium has been declared under section 14 of IBC, the authority which in the instant case is SEBI will have no jurisdiction to institute any proceedings. Where a proceeding has already been instituted and during the pendency of the proceedings a moratorium order is passed under section 14 then the authority is prohibited from continuing with the proceedings. This is clear from a bare reading of the provisions of section 14(1) of the IBC,” said the SAT in its order.
DHFL is undergoing insolvency proceedings since 3 December 2019 when the Mumbai bench of the NCLT admitted insolvency application against the housing finance company.
Section 14 of IBC deals with moratorium wherein any corporate debtor undergoing insolvency proceedings will be given immunity against any new or existing suits, legal action, etc under any other laws.
On 24 December 2019, the Sebi had issued a show cause notice to DHFL asking it why penalty should not be imposed for non-compliance of the provisions of Regulation 16(1) of Securities and Exchange Board of India (Issue of Listing of Debenture Securities) Regulations, 2008 read with Rule 18(7)(b)(ii) and 18(7)(c) of Companies (Share Capital and Debentures) Rule, 2014 and Regulation 52(1) read with Regulation 52(4) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
The show cause notice alleged that DHFL had failed to create requisite debenture redemption reserve and failed to invest 15% of the amount of non-convertible debentures maturing as on 31 March 2020 as required under the provisions of (Issue of Listing of Debenture Securities) Regulations, 2008 and failed to submit the audited financial result and line items as prescribed under (Listing Obligations and Disclosure Requirements) Regulations, 2015.
In response to the show cause notice, DJFL submitted on 9 January 2020 pointing out that in view of section 14 of Insolvency and Bankruptcy Code no proceedings could be instituted or continued during the currency of the moratorium period.
However, the adjudicating Officer went ahead and imposed a penalty of Rs 20 lakh on DHFL after observing that the moratorium under section 14 of the IBC would not prevent the adjudicating officer from determining the liability of the corporate debtor and that the moratorium declared under the IBC would be applicable to the enforcement/recovery of the determined liability.
