SEBI-Imposed Penalty Qualifies As A 'Fine' & Is An 'Excluded Debt' U/S 79(15)(A) Of IBC: NCLAT Chennai

Background

Appellant, being the personal guarantor of a company, filed an application before the Adjudicating Authority under Section 94(1) of the IBC, seeking initiation of the Insolvency Resolution Process (including interest and penalty). The Adjudicating Authority admitted the application and appointed the Resolution Professional for the appellant. The appellant and the Resolution Professional prepared a repayment plan and proposed the restructuring of the debt in accordance with Section 105 of the IBC. However, the CoC rejected the resolution plan, and thereafter the Resolution Professional filed an application under Sections 113 & 114 of the IBC to initiate the bankruptcy proceedings against the appellant. The Adjudicating Authority passed the order under Section 122 and directed the bankruptcy of the appellant. While admitting the petition, the NCLT also ruled that the “penalty” imposed by the SEBI on the appellant qualifies as a 'fine', and this is an “excluded debt” under Section 79(15)a of the IBC. Aggrieved by this observation of the Adjudicating Authority, the appellant has preferred the appeal before this tribunal.

Contention of the Parties

The appellant argued that the term 'fine' mentioned under Section 79(15)(a) of the IBC does not cover the penalty imposed by the SEBI. For its submission, the appellant relied on the Telangana High Court's ruling in Writ Petition No. 34761/2022, and said that the SEBI framework cannot override the bankruptcy framework as provided under the IBC.

Judgment of the NCLAT

The NCLAT observed that the decision of the learned single bench of the Telangana High Court was in the context of a demand notice under Section 28A of the SEBI Act, 1992, and the same cannot be directly applied here in this context.

The tribunal observed that an appeal was preferred against the mentioned writ petition, which was adjudicated by the division bench of the Hon'ble Court. The decision of the division bench had left open the question of whether the levy of a fine or penalty under Section 28A of the SEBI Act will fall under the 'excluded debt' under Section 79(15)(a) of the IBC. The issue was left open to be decided by the appropriate proceedings.

The bench observed that the statute itself prescribes that once a special statute creates a bar and does not include within itself the debts in the shape of a fine, it has to be excluded as debt; the same cannot be read in any way other than what was intended by the legislature. Therefore, the fine is classified as 'excluded debt' according to Section 79(15)(a) of the IBC.

The bench referred to the judgment of the Hon'ble Supreme Court in the case of Saranga Anilkumar Aggarwal V. Bhavesh Dhirajlal Sheth and Others and observed that the Hon'ble Court has ruled that the penalties imposed by the NCDRC do not come under the moratorium imposed under Section 96 of the IBC. Hence, the penalties imposed by the SEBI will also be termed as the 'excluded debt' because both the penalties possess the same nature.

Lastly, the tribunal said that the observation of the Adjudicating Authority, which termed the fine imposed by the SEBI as the 'excluded debt' and kept it outside the bankruptcy proceedings, cannot be said to be arbitrary or contrary to the law.

Case Title: Mrs. G.V. Marry vs Securities And Exchange Board Of India

Case Number: Company Appeal (AT) (CH) (Ins) No.165/2024

(IA No. 450/2025)

For Appellant: Mr. M.L. Joseph

For Respondent: Mr. Rahul Unnikrishnan, Advocate for R3

Bench: Justice Sharad Kumar Sharma (Member-Judicial) and Jatindranath Swain (Member-Technical)

Judgment Date: 30/04/2025

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