NCLAT Rejects SEBI’s Plea to Recover Penalty from Annies Apparel

The NCLAT has set aside an appeal by SEBI, where the markets regulator had asked the tribunal to recover the penalty imposed by it against an entity related to the diversion of funds in the Religare Finvest matter, saying such claims cannot be filed once the liquidation process begins under IBC.

There was no infirmity in the decision of the liquidator in not admitting the claim of SEBI arising out of the order passed by the Adjudicating Officer (AO) and filed after a delay of 797 days after the liquidation commencement date, it said.

The appellate tribunal upheld the order by NCLT and the liquidator of Annies Apparel, observing that the Insolvency & Bankruptcy Code (IBC) “clearly freezes all claims” as on the liquidation commencement date.

“The statutory provisions of the IBC read with attendant Liquidation Process Regulations, we are clear that the statutory intent of the IBC clearly freezes all claims as on the liquidation commencement date,” said NCLAT.

This accords “inviolable sanctity” to the liquidation commencement date and does not give any flexibility or latitude to the Liquidator to entertain claims beyond this particular date.

“The Liquidator has acted squarely within the four corners of IBC and LPR (Liquidation Process Regulations) framed thereunder and the Adjudicating Authority has not committed any error in affirming the decision of the Liquidator to reject the claims of SEBI basis the AO,” said NCLAT.

The National Company Law Appellate Tribunal (NCLAT) direction came over an appeal filed by the Securities and Exchange Board of India (SEBI), which had moved NCLAT to recover a penalty of Rs 21.80 lakh from Annies Apparel, going to liquidation after it failed to attract a buyer during insolvency process.

SEBI had received certain complaints regarding financial mismanagement and diversion of funds in Religare Finvest Ltd (RFL), which was a subsidiary of Religare Enterprises Ltd. (REL).

An investigation was conducted, after which Annies Apparel (Corporate Debtor) was served a show cause notice on February 15, 2021, purportedly for diversion/misutilization of funds of REL through RFL.

While SEBI had proceeded with their inquiry against Annies Apparel, the latter came under liquidation on March 15, 2021. The Liquidator appointed for the company has fixed April 14, 2021 as the last date for submission of claims for the stakeholders after making public announcements.

Meanwhile, the Adjudicating Officer of SEBI passed an Adjudication Order on October 31, 2022 imposing a monetary penalty of Rs 21.80 lakh on Annies Apparel.

Claiming that SEBI was unaware of the liquidation proceedings of Annies Apparel, they filed their claim with the Liquidator on June 20, 2023. There was a delay of 797 days in filing the claim from the public announcement by the liquidator.

The Liquidator rejected the claim filed by SEBI on June 22, 2023 on the ground that the amount claimed vide the AO was not a debt which had arisen prior to the liquidation commencement date.

This was challenged by SEBI before the Delhi bench of the National Company Law Tribunal (NCLT). However, the insolvency tribunal rejected the claims of SEBI on June 4, 2024.

SEBI subsequently moved to the appellate tribunal NCLAT by filing an appeal against the NCLT order.

The market regulator submitted that the liquidator of Annies Apparel was aware of the ongoing SEBI proceedings and he was duty-bound to comply with the provisions of the SEBI Act, including payment of penalties on behalf of the Corporate Debtor.

The delay in the filing of the claim form before the Liquidator was neither deliberate nor an attempt to stagger and delay the liquidation proceedings.

However, NCLAT also did not accept SEBI’s submission and dismissed its petition, observing that the statutory intent of the IBC clearly freezes all claims as on the liquidation commencement date.

"Basis the aforesaid discussion, we are of the considered view that there is no infirmity in the impugned order rejecting ... The Appeal is devoid of substance and is dismissed. No costs,” said NCLAT bench comprising Chairperson Justice Ashok Bhushan and Member (Technical) Barun Mitra.