May 20, 2019

NCLT Orders De-attachment Of HBN Dairies Properties Attached By The Securities And Exchange Board Of India


The principal bench of National Company Law Tribunal (NCLT) recently ordered de-attachment of properties belonging to a corporate debtor called HBN Dairies and Allies Ltd.

These were attached as part of execution proceedings by the Securities and Exchange Board of India (SEBI) and the attachment order was also upheld by the Securities Appellate Tribunal (SAT).

In this particular case, corporate debtor HBN Dairies and Allies Ltd, which ran an unregistered collective investment scheme, was admitted into the corporate insolvency resolution process, based on an application filed by some of its investors.

A few months before HBN was admitted into a corporate insolvency resolution process, a SEBI recovery officer had passed an attachment order, based on an order passed by an adjudicating officer in 2015. Later, the SAT had upheld SEBI’s decision and ordered sale of HBN’s assets as part of recovery proceedings.

During the time of admission by the NCLT, HBN Dairies had a raised a plea in its defense, that its admission into corporate insolvency resolution process would lead to conflict, since recovery proceedings had already been initiated against by SEBI.

At that point, the NCLT noted that the overriding nature of Section 238 of the Insolvency & Bankruptcy Code (IBC) and admitted the application. With respect to the ongoing recovery proceedings, the NCLT opined that it would henceforth be the resolution professional’s mandate to take action.

Accordingly, HBN’s resolution professional made an application to the NCLT requesting de-attachment of properties in view of Section 14 of the IBC, which imposes a moratorium prohibiting alienation of the corporate debtor’s properties.

Consequently, the NCLT once again relied on Section 238 of the IBC, and the Supreme Court’s ruling in the case of Monnet Ispat & Energy to rule that anything inconsistent in any other law would be overridden by the IBC.

The NCLT also found that Sections 11 & 11B of the SEBI Act read with Regulation 65 of the SEBI (CIS) Regulations, 1999, would directly be in conflict with Section 238 of the IBC, as well as many other sections, particularly Section 14 of the IBC, since execution proceedings can’t take place while the corporate insolvency resolution process is still underway.

The recent NCLT order reaffirms the supremacy of the IBC over other laws which may act as hurdles during the corporate insolvency resolution process.

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