The National Company Law Appellate Tribunal (NCLAT) has set aside an appeal filed by the Securities and Exchange Board of India (SEBI), in which the market regulator had sought recovery of a penalty imposed in connection with the alleged diversion of funds in the Religare Finvest matter. The appellate tribunal held that such claims cannot be entertained once the liquidation process has commenced under the Insolvency and Bankruptcy Code (IBC).
The tribunal observed that there was no infirmity in the decision of the liquidator in refusing to admit SEBI’s claim, which arose from an order passed by a SEBI adjudicating officer and was filed 797 days after the liquidation commencement date. It upheld the order of the National Company Law Tribunal (NCLT) and the liquidator of Annies Apparel – a Delhi-based wholesale textile firm, noting that the IBC clearly freezes all claims as on the liquidation commencement date.
The NCLAT stated that the statutory provisions of the IBC, read together with the Liquidation Process Regulations, demonstrate a clear legislative intent to freeze all claims from the liquidation commencement date. It added that this accords inviolable sanctity to that date and provides no flexibility or latitude to the liquidator to entertain claims filed thereafter.
According to the appellate tribunal, the liquidator had acted strictly within the framework of the IBC and the Liquidation Process Regulations framed under it, and the adjudicating authority had not erred in affirming the liquidator’s decision to reject SEBI’s claim based on the adjudication order.
The NCLAT’s ruling arose from an appeal filed by SEBI, which had sought to recover a penalty of Rs. 21.80 lakh (US $ 24,000) from Annies Apparel, that entered liquidation after failing to attract a buyer during the insolvency resolution process.
SEBI had received complaints alleging financial mismanagement and diversion of funds at Religare Finvest Ltd, a subsidiary of Religare Enterprises Ltd. Following an investigation, Annies Apparel, the corporate debtor, was issued a show-cause notice on 15th February 2021 in relation to the alleged diversion or misuse of funds of Religare Enterprises through Religare Finvest.
While SEBI’s inquiry was ongoing, Annies Apparel entered liquidation on 15th March 2021. The liquidator subsequently fixed 14th April 2021 as the last date for submission of claims by stakeholders, following public announcements.
On 31st October 2022, SEBI’s adjudicating officer passed an order imposing a monetary penalty of Rs. 21.80 lakh (US $ 24,000) on Annies Apparel. SEBI later claimed that it was unaware of the liquidation proceedings and filed its claim with the liquidator on 20th June 2023, resulting in a delay of 797 days from the date of the public announcement.
Before the appellate tribunal, SEBI argued that the liquidator was aware of the ongoing SEBI proceedings and was duty-bound to comply with the provisions of the SEBI Act, including the payment of penalties on behalf of the corporate debtor. It also submitted that the delay in filing the claim was neither deliberate nor intended to impede the liquidation process.
However, the NCLAT rejected these submissions and dismissed SEBI’s appeal, reiterating that the statutory intent of the IBC is to freeze all claims as on the liquidation commencement date.
