REGULATORY PROCEEDINGS PROHIBITED DURING MORATORIUM PERIOD UNDER IBC

In an interesting Order, the Securities Appellate Tribunal (SAT), in the case of Dewan Housing, directed the Securities and Exchange Board of India (SEBI) to halt proceedings against Dewan Housing Finance Corporation Limited (DHFL) and quashed the order of the SEBI imposing penalty on DHFL.

BACKGROUND

• Corporate Insolvency Resolution Process (CIRP) was instituted against DHFL and thus, moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was imposed on DHFL.
  
  
• During the moratorium, the Adjudicating Officer of SEBI issued a notice to DHFL to show cause as to why penalty should not be imposed on it for non-compliance of various SEBI regulations dealing with the creation of `Debenture Redemption Reserve` and submission of audited financial results.
  
  
• DHFL contended that due to the moratorium under IBC in place, no proceedings could be initiated against it. However, the Adjudicating Officer of SEBI vide an Order (SEBI Order) imposed a penalty of Rs 20 lacs on DHFL for non-compliance of various SEBI regulations.
  
  
• In light of the above circumstances, DHFL challenged the SEBI Order before SAT.
  

The Securities Appellate Tribunal held:

• SEBI argued on mainly on two grounds:- (a) the moratorium declared under IBC would be applicable only to the enforcement / recovery of the determined liability and not to proceedings for assessing or determining the liability; (b) that moratorium is only applicable to creditors and not to regulators like the SEBI.
  
  
• SAT rejected SEBI’s argument and held that the word ‘proceedings’ under Section 14 of the IBC would cover the proceedings initiated by SEBI against DHFL.
  
  
• SAT placed reliance on the judgments of the Supreme Court in Alchemist ARC case and Innoventive Industries case, and held that in cases where moratorium has been declared under the IBC, Adjudicating Officer of SEBI does not have jurisdiction to proceed under the SEBI laws / regulations against a corporate debtor (DHFL in the present case).
  
  
• It also rejected the contention of the SEBI that moratorium is only applicable to creditors and not to regulators like the SEBI. Placing reliance on previous judgments of the National Company Law Tribunal (NCLT), inter alia, in case of Ms Anju Agarwal vs Bombay Stock Exchange & Others, wherein it was held that in case of contradictions, Section 14 of the IBC would prevail over Section 28A of the SEBI Act (provision dealing with the imposition of penalties), SAT held that SEBI cannot recover any penalty from DHFL.
  
  
• Thus, SAT quashed the order of SEBI imposing penalty on DHFL. It also quashed the show cause notice and the proceedings for recovery of the penalty, as no proceedings could be instituted due to the moratorium.

MHCO Comment :

The order of the SAT is an interesting development. The order delves into and interprets Section 14 of the IBC, which might be beyond the jurisdiction of the SAT, as the NCLT would be an appropriate forum to decide the same. Further, this order effectively bars regulators like the SEBI, the Reserve Bank of India, Insurance Regulatory and Development Authority, from penalising entities for violation of its regulations. It would be interesting to see whether SEBI files an appeal against this order of the SAT.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

MAHARASHTRA APARTMENT OWNERSHIP ACT AMENDMENT| CO-OPERATIVE COURT TO NOW HAVE JURISDICTION 

The Government of Maharashtra recently amended the Maharashtra Apartment Ownership (Amendment) Act, 2020 . This update seeks to broadly set out the important changes and additions brought about to the Maharashtra Apartment Ownership Act, 1970 (Act).

• Section 12A – As per this newly added Section 12A to the Act, the Apartment owners now can change or amend the contents of the Declaration or Deed of Apartments by passing a resolution by majority in a special meeting of the Association of Apartment Owners. Earlier, the Apartment owners in order to make any revisions or amendments required registraion of ‘Deed of Apartment – Form II’ before the Sub-Registrar of Assurances as per the Maharashtra Apartment Ownership Rules, 1972. This provision seems to be have been done away with in this amdendement.
  
  
• Section 16A – This new Section 16A now allows any aggrieved apartment owner or association of apartment owners can file a complaint with the Registrar for any violation or contravention of the provisions of the Act or the rules against any apartment owner or the sole owner or all the owners of the property. Every such complaint filed before the Registrar shall as far as possible be disposed of within a period of 30 days from the date of its filing. If the Registrar fails to dispose of the complaint within 30 days, he must record the reasons for the delay.
  
  
• Section 16B – Any apartment owner, Association of Apartment owners or any sole owner aggrieved by any direction or order of the Registrar may prefer an appeal to the Co-operative Court. Every appeal under this newly added section shall be preferred within a period of 60 days from the date on which the copy of the direction or order made by the Registrar is received. The Co-operative Court shall after giving reasonable opportunities to the parties pass such orders as it may deem fit and shall send a copy of every order passed in the appeal to the Registrar and the parties. Every appeal shall be dealt by the Co-operative Court within 90 days from the date of receipt of the appeal.
  

MHCO Comment :

Earlier the resident of the apartment owners had to file a suit before the civil court for any dispute with the apartment owners or the condominium and the same was time consuming. Even if a member did not pay the monthly maintenance fee, the other remaining members had to seek redressal from the civil court. This amendment now puts the apartment owners in same forum as the cooperative housing societies i.e. before the Deputy Registrar and Cooperative Court which being a specialised forum to adjudicate these issues. This amendment further requires the Deputy Registrar and Cooperative Court to resolve the issues in a timely manner.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

SUPREME COURT | STAY ON PROCEEDINGS TO AUTOMATICALLY CEASE TO HAVE EFFECT ON COMPLETION OF 6 MONTHS 

The Supreme Court of India recently passed an order in Asian Resurfacing of Road Agency Private Limited & Another vs Central Bureau of Investigation , directing that a stay granted by any court (including the High Courts), in any civil or criminal proceedings, shall automatically cease to have effect on expiry of 6 months, unless extended for good reasons.

BACKGROUND

• In the present case, the Complainant had approached the Court of the Additional Chief Judicial Magistrate, Pune (Trial Court) for resumption of trial that had been stayed by the Bombay High Court. However, the Trial Court refused the plea of the Complainant to resume trial and directed the Complainant to move an application for resuming trial before the Bombay High Court, as it cannot pass any order in a proceeding which has been stayed by the superior court, being the Bombay High Court.
  
  
• The Trial Court’s order deviated from what was laid down in a 2018 Judgment of the Supreme Court (2018 Judgment) , in the same matter in which the Supreme Court had directed that all stay orders against proceedings shall terminate within 6 months. In light of the above circumstances, the Complainant once again approached the Supreme Court.
  

Supreme Court observed that:

• The order of the Trial Court directing the Complainant to approach the High Court is contrary to its 2018 Judgment, wherein, the Supreme Court had held that, in all cases where a stay against proceedings of a civil or criminal trial is operating, the same shall come to an end on the expiry of 6 months from the date of the 2018 judgement. Further, any stay against proceedings, granted post the 2018 judgment shall cease to have effect on the expiry of 6 months from the date of the order granting such stay, unless extension is granted by a speaking order.
  
  
• The Supreme Court clarified that under the Constitution of India, the Supreme Court is at the apex, and the High Courts, though not subordinate administratively, are certainly subordinate judicially. Thus, the Trial Court ought to have followed the 2018 Judgment instead of abiding by the stay order granted by the Bombay High Court.
  
  
• The Supreme Court held that stay against proceedings granted by any court, including the High Courts, automatically expires within a period of 6 months from the date of passing such a stay order, and unless extension is granted for good reason, by a speaking order, the trial judge shall on the expiry of 6 months, set a date for the trial and go ahead with the same.
  
  
• The Supreme Court set aside the order of the Trial Court and directed the Trial Court to set down the case for hearing.

MHCO Comment :

This decision of the Supreme Court reiterates the position laid down in the 2018 Judgment and will go a long way in ensuring that the proceedings do not remain adjourned sine die on account of stay orders. This is a welcome step by the Supreme Court towards bringing an end to long pending trials.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.