The Securities and Exchange Board of India (SEBI) has approached the Supreme Court challenging a National Company Law Tribunal (NCLT) order which had ruled that the Insolvency and Bankruptcy Code (IBC) would override the SEBI Act.
Earlier, the NCLT had reversed an order in a case concerning Collective Investment Schemes (CIS) in which the SEBI had directed attachment of properties and held that the IBC would take precedence over the SEBI Act.
As things stand, it is yet to be conclusively decided whether depositors in a collective investment scheme can be treated as financial creditors and whether the Insolvency and Bankruptcy Code can be triggered in case a collective investment scheme is governed and regulated by the SEBI Act.
As far as the present case is concerned, the SBI had directed attachment of properties belonging to HBN Dairies & Allies Ltd in 2015, on account of illegally collecting deposits worth Rs 1136 crore under an unauthorized collective investment scheme. This order was passed in accordance with the provisions of the SEBI Act.
As per this order which was subsequently affirmed by the Securities Appellate Tribunal (SAT) the properties of HBN Dairies were ordered to be attached so that they could be sold in order to pay back depositors.
However, in early 2019, a group of more than 30 depositors filed an application against HBN Dairies before the NCLT under the Insolvency and Bankruptcy Code.
The depositors’ plea was admitted before the NCLT without involving the SEBI and it led to the NCLT appointing an Insolvency Resolution professional to carry out proceedings under the Insolvency and Bankruptcy Code.
The NCLT order also directed de-attachment of HBN HBN Dairies’ properties which were attached by the SEBI and held that the Insolvency and Bankruptcy Code would override the provisions of the SEBI Act.
Additionally, the NCLT order stated that consequently, SEBI cannot recover any money from HBN Dairies.
Later, the National Company Law Appellate Tribunal (NCLAT) also upheld this order reiterating that the SEBI Act would override the Insolvency and Bankruptcy Code, which had led to the latest appeal before the Supreme Court.
The SEBI has challenged the NCLT order on the grounds that a collective investment scheme is constituted in the form of a trust and its assets are held by trustees for the benefit of investors. This trust is completely divorced from the Collective Investment Management Company which initiates the scheme. Therefore, the Insolvency and Bankruptcy Code cannot be invoked when the case concerns a collective investment scheme and not a company, according to the SEBI.