SAT overturns SEBI decision to levy penalty on Monnet Ispat; says IBC overrides market regulator
The Securities Appellate Tribunal (SAT) has once again emphasized that IBC overrides the Securities and Exchange Board of India (SEBI), when it overturned the securities market regulator’s decision to levy a penalty on Monnet Ispat and Energy Ltd for violating listing obligations and disclosure (LODR) requirements during the period from 2013 to 2014.
The SAT said in its order that once a resolution plan has been approved it becomes binding on all creditors including the government and local authorities including SEBI under section 31(1) of the IBC.
“It is no longer open to the respondent (SEBI) to issue a show cause notice or adjudicate and pass an order of penalty upon the appellant (Monnet Ispat). Consequently, the impugned order cannot be sustained and is quashed,” said the order.
Monnet Ispat and Energy Ltd has been acquired by a Consortium of JSW and Energy Limited and AION Investments Pvt. Ltd through an insolvency and bankruptcy proceeding in July 2018.
The securities market regulator on 18 October 2019 had issued a show cause notice alleging that the Monnet Ispat had issued non-convertible debenture securities in 2013-14 but failed to make the necessary disclosures as required under the LODR Regulations.
The new management of the Monnet Ispat, on its part, tried to argue before the adjudicating officer of SEBI that in view of the resolution plan being approved by the National Company Law Tribunal (NCLT), all financial liabilities, past or future is deemed to be extinguished by virtue of the NCLT order and that no show cause notice or fresh proceedings against the appellant could be initiated nor any penalty could be imposed.
It was further stated that action, if any, can be initiated by the respondent against the erstwhile promoters or against those persons who were in charge of the management of the company prior to the commencement of the resolution plan.
However, the adjudicating officer discounted Monnet Ispat’s submission by arguing that it is beyond her ambit to comment as to whether such proceedings could be initiated against the new management or the erstwhile management and that her role under the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as “Adjudication Rules, 1995”) is to adjudge the alleged violation by the appellant.
The adjudicating officer thus Monnet in violation of LODR Regulations and imposed a penalty of Rs 600,000.
The Securities Appellate Tribunal (SAT) overturned the order by concluding that what could not done by SEBI when the moratorium under section 14(1) of the IBC was in force cannot certainly be done after a resolution plan is approved and becomes binding on all creditors including government and local authority under section 31 of the IBC.
