M/s. LML Ltd. (Under Liquidation) vs SEBI and Anr
Misc. Application No.570of 2023
Facts:
1.Appellant was a public limited Company. Liquidation process was initiated against the Company vide order dated 23rd March, 2018 passed by the National Company Law Tribunal (hereinafter referred to as „NCLT‟), Allahabad Bench.
2.Pursuant to the said order Shri Arun Gupta was appointed as a Liquidator vide order dated 9th April, 2018. Consequent upon taking control of the assets and liabilities of LML Ltd in accordance with the applicable provisions of IBC. The liquidator came to know that LML Ltd., held 15,36,000 shares of VCCL, another public limited Company. These 15,36,000 shares constituted36% shareholding in VCCL and, therefore, LML was the major promoter. This, shareholding pattern of VCCL was filed before the stock exchange for the quarter ending March, 2018.
3.VCCL Ltd., is a public limited Company in which 32% of its shareholding is controlled by LML Ltd. On account of non-compliance of Regulation 33 of SEBI LODR trading in the securities of the Company VCCL was suspended by the BSE Ltd., with effect from 26th November, 2018. As per the Standard Operating Procedure (SOP) prescribed by Securities and Exchange Board of India (hereinafter referred to as „SEBI‟) vide circular dated 30th November, 2015, the shareholding of the promoters stood frozen.
4.Pursuant to the SEBI circular dated 1st August, 2019, the Depositories were directed to freeze the demat accounts of the promoters. As a result, the demat account of the appellant was also frozen. Liquidator wrote several letters to the stock exchanges as well as to SEBI seeking exemption from clause 3(b) of the SOP of 2015 pertaining to restriction and transfer of shares held by LML in VCCL Ltd. and made various correspondence with Depositories and Depository Participants for defreezing of the demat accounts of LML Ltd. These applications fell on deaf ears as no action was taken. The Liquidator thereafter made an application to the NCLT for appropriate orders but subsequently withdrew the same with liberty to file it before the appropriate forum and, consequently, thereafter filed the present appeal.
Issue: Whether refusal to defreeze the account is correct or not ?
Arguments:
Respondent:
1.Counsel contended that the respondent SEBI had no quarrel with the appellant on the merits of the issue. It was submitted that under the IBC, 2016, the Official Liquidator has a right to proceed under Section 52 of the IBC to recover and realiseany security of the Company under liquidation and, further, submitted that IBC will prevail over the SEBI laws. The learned senior counsel, however, submitted that this Tribunal has no jurisdiction to dwell into this issue in view of the decision of the Supreme Court in Gujarat UrjaVikas Nigam Ltd.
Decision: Hon’ble SAT set aside the decision of SEBI and allowed defreezing of account.
Rationale:
1.Hon’ble SAT noted that SEBI is taking a technical or rather hyper technical objection in urging that this Tribunal does not have any jurisdiction. The upshot of the argument of the respondent is, that whereas they agree that the shares should be defreezed so that the Liquidator can complete the liquidation of the Company in liquidation, but contends that the appropriate jurisdiction for passing such an order would be to move an application under 60(5)(c) of the IBC before NCLT.
2.It also noted that the intention of the respondent is not to resolve the issue but to keep it lingering and waste time of the Courts/Tribunal and money of the public exchequer.
3.It held that complete jurisdiction of other Courts or Tribunals, under any other law is not ousted by this provision, namely, Section 60(5) of the IBC.
4.It held that demat account of the Company in the liquidation i.e. the appellant has been frozen on account of non-compliance of Regulation 33 of the LODR which has nothing to do with the insolvency process or liquidation process under IBC. Thus, the appeal was rightly filed by the Liquidator before this Tribunal.
5.It held that the Company went in liquidation in March, 2018 prior to the suspension of the securities of the VCCL Company which occurred on 26thNovember, 2018. All subsequent action by SEBI would be in contravention to Section 52 of the IBC and direction (e) of NCLT order dated 23rd March, 2018 as extracted in the earlier part of the order.
Order copy:
