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2015-TIOL-231-SC-CA
A P INDUSTRIAL DEVELOPMENT CORPORATION LTD: SUPREME COURT OF INDIA (Dated: August 7, 2015)
State Financial Corporations Act, 1959 - Section 29 - Companies Act 1956 - Section 445, 529A.
Keywords - Pari passu charge - Secured creditor - Unsecured creditor - Workmen compensation.
Whether imposing certain conditions on the State Financial Corporations by the Company Court in the proceedings of liquidation can reduce their status to the extent of requiring them to prove their debt which they are already entitled to receive statutorily - NO - SC
Whether the Official Liquidator can claim any power or jurisdiction in himself to adjudicate and quantify the claim of statutory corporations who otherwise have the status of secured creditors - NO - SC
Facts
The appellant was a Company under going liquidation process. The Official Liquidator (OL) took over the charge of the appellant company.The assets of the company were seized and sale of the assets was conducted by first respondent (corporation) as per conditions imposed by the High Court. To comply with one of the conditions the corporation was required to obtain permission of the High Court for finalizing/confirming the sale. The respondent corporation had submitted to the order of the Company Judge requiring the corporation to undertake to deposit workmen's dues with the OL as and when quantified by him as per the provisions of Section 529A of the Indian Companies Act with interest at the bank rate and whatever surplus would remain after the sale and realization of the dues of the secured creditors and the workmen, as per law, the balance sale proceeds could be made available to the OL for being dealt with as per the provisions of the Companies Act and the Rules. The High Court, noting that there was no objection to sale of the properties either by the second charge holder or by the OL, confirmed the same, subject to the condition that respondent corporation had to prove their claim before the OL. Aggrieved with this condition, respondent preferred an intra-court appeal, which was accepted. It was ordered that OL would quantify the amounts liable to be paid to the workmen and respondent was not required to establish the claim as secured creditor. Hence, this appeal.
Decision
The Supreme Court held that OL did not have jurisdiction to ascertain or adjudicate the claim of a secured creditor which had been allowed by the Court with certain conditions. Secured creditors need not prove their debt before OL which they were entitled to realize under the provisions of the SFC Act.
Reasoning
1. Rights of a financial corporation available under the provisions of the SFC Act have been compromised by the amendment of 1985 in the Companies Act, only for the limited purpose of securing the right of the workers for distribution of their wages as pari passu charge. But such limited impediment to their rights under the SFC Act would not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions of the SFC Act subject to right of the workers to receive their wages also as secured creditors on pari passu basis. The control of the OL can extend only to ensure that the aforesaid purpose of law is effectively achieved.
2. There are three very important judgments of this Court, dealing with this issue, namely A.P. State Financial Corporation v. Official Liquidator, International Coach Builders Ltd. v. Karnataka State Financial Corpn. and Rajasthan State Financial Corpn. v. Official Liquidators. In all of them this point was emphasised that because of conditions/restrictions imposed on secured creditors they would not be reduced to the status of unsecured creditors and equally woud not be required to prove their debts nor will be required to stand in line with other unsecured creditors.
Appellant's Appeal dismissed
2015-TIOL-2302-HC-DEL-SEBI
KALPTARU AGRO LTD VS SEBI: DELHI HIGH COURT (Dated: September 23, 2015)
SEBI Act, 1992 - Sections 11(B), 12(1B) & 24(1), SEBI (CIS Regulations, 1999) - Regulations 5(1), 68(1), 68(2), 73 & 74 - Code of Criminal Procedure - Section 251
Keywords - Delay - Mistake - Summon Case - Warrant Case.
Whether a long delay in realizing that violation of SEBI Collective Investment Scheme Regulations amounts to an offence and warrant case and not a summon case and the same was being tried as a summon case, can change the nature of such violation - NO - HC
Whether a warrant case can be challenged on the ground of having wrongly treated it as summon case, although the cause of action had arisen after the amendment SEBI Act - NO - HC
Facts
The petitioner is a Company engaged in financial intermediation. SEBI had filed one complaint against petitioner that it ran a collective investment scheme and had raised certain amount from the general public. Pursuant to SEBI press release and public notice, the petitioner filed information/details with the SEBI regarding the scheme. As per the SEBI (Collective Investment Schemes) Regulation 1999, any person who had been operating a collective investment scheme at the time of commencement of said regulation would be deemed to be an existing collective investment scheme and would be required to comply with the provisions of Chapter IX. An application was required to be made to the SEBI for grant of registration within a period of two months from the date of notification of the said regulation. The petitioner made an application for registration with SEBI as collective investment management company under the regulations. Since the petitioner did not satisfy the eligibility criterion under the regulations, the application was rejected by the SEBI and the fact of rejection was conveyed. By the aforesaid letter, the petitioner was made aware of the requirement of Regulation 73 which made it imperative for the company to wind up its existing collective investment schemes and to make repayment to the investors. On completion of the winding up and repayment to the investors, the company was again required to file a detailed report in a format specified by the SEBI within 3½ months of the date of the information memorandum. The petitioner failed to comply with the aforesaid requirements and, therefore, they made themselves liable for being prosecuted for violation of provisions of the SEBI Act, 1992 and relevant Regulations. SEBI, directed the petitioner to refund the money collected under the Scheme to the investors within one month from the date of such direction. No information was received by SEBI whether the petitioner complied with this direction or not. Pursuant to the complaint lodged by SEBI, a notice was framed u/s 251 of the Code of Criminal Procedure. Before the case could proceed any further, an application was moved by SEBI seeking to treat the case as warrant case and frame formal charges instead of trying the case in a summary manner wherein notice was earlier framed. The Trial Court converted the case into a warrant case and notified the case for pre-charge evidence. While passing the aforesaid order, the Court took note of the fact that by virtue of an amendment in the year 2002 in the SEBI Act, Section 24(1) was amended and the punishment prescribed had increased.
The Petitioner challenged the order before the High Court, stating that the SEBI at the time of the filing of the criminal complaint was aware of the fact that there had been an amendment in Section 24 of the SEBI Act in the year 2002 but still made a prayer for issuance of summons and not treating the case as a warrant case. It was further argued that the proceedings commenced as if the case was a summons case, which proceeding continued from 2006 to 2011. It was argued that after eight years of filing of the complaint, an application was moved by the SEBI for amendment of the charge, which was wrongly allowed by the impugned order. It was further argued that since no charges were framed by the Trial Court, therefore, the application preferred by the SEBI for amendment of charge was misconceived.
Decision
The High Court dismissed the application of the petitioner. The Trial Court was directed to proceed with the case in the manner in which a warrant case was tried.
Reasoning
1. Complaint was filed after the amendment in the SEBI Act and, therefore, it was only a mistake in trying the aforesaid complaint as a summons case. Merely because the word ‘summons’ was used in the prayer of the complainant, the Court ought not to have treated it as a summons case and the same ground cannot be taken by the petitioner for challenging the order impugned.
2. In order to regulate the Collective Investment Schemes, for the benefit of investors as well as for promotion of legitimate investment activity, SEBI came out with Regulations in the year 1999 under the name Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1995 (CIS Regulations). In terms of the said Regulations, any person who, immediately prior to the commencement of CIS Regulations was operating a Collective Investment Scheme had to make an application to the SEBI for grant of registration within a period of two months.
3. Thus the complaint lodged by the SEBI for violation of the provisions of sections 11(B), 12(1B) of the SEBI Act, 1992 read with Regulation 5(1) read with Regulation 68(1), 68(2), 73 and 74 of the SEBI (CIS Regulations, 1999), punishable u/s 24(1) of the SEBI Act, was in the nature of a warrant case and it was only a mistake on the part of the Court as well as the SEBI in not treating it as a warrant case from the beginning.
4. The delay of eight years in realizing the mistake would not make the case a summons case. The cause of action, admittedly, has arisen after the amendment in the SEBI Act. Any mistake of law cannot be permitted to be perpetuated and no sooner the same is discerned, remedial measures ought to be taken.
Petitioner's application dismissed
2015-TIOL-2301-HC-MUM-MISC
ITC LTD VS NTC INDUSTRIES LTD: BOMBAY HIGH COURT (Dated: September 29, 2015)
SEBI Act, 1992 - Sections 11(B), 12(1B) & 24(1), SEBI (CIS Regulations, 1999) - Regulations 5(1), 68(1), 68(2), 73 & 74 - Code of Criminal Procedure - Section 251
Keywords - Delay - Mistake - Summon Case - Warrant Case.
Whether a long delay in realizing that violation of SEBI Collective Investment Scheme Regulations amounts to an offence and warrant case and not a summon case and the same was being tried as a summon case, can change the nature of such violation - NO - HC
Whether a warrant case can be challenged on the ground of having wrongly treated it as summon case, although the cause of action had arisen after the amendment SEBI Act - NO - HC
Facts
The petitioner is a Company engaged in financial intermediation. SEBI had filed one complaint against petitioner that it ran a collective investment scheme and had raised certain amount from the general public. Pursuant to SEBI press release and public notice, the petitioner filed information/details with the SEBI regarding the scheme. As per the SEBI (Collective Investment Schemes) Regulation 1999, any person who had been operating a collective investment scheme at the time of commencement of said regulation would be deemed to be an existing collective investment scheme and would be required to comply with the provisions of Chapter IX. An application was required to be made to the SEBI for grant of registration within a period of two months from the date of notification of the said regulation. The petitioner made an application for registration with SEBI as collective investment management company under the regulations. Since the petitioner did not satisfy the eligibility criterion under the regulations, the application was rejected by the SEBI and the fact of rejection was conveyed. By the aforesaid letter, the petitioner was made aware of the requirement of Regulation 73 which made it imperative for the company to wind up its existing collective investment schemes and to make repayment to the investors. On completion of the winding up and repayment to the investors, the company was again required to file a detailed report in a format specified by the SEBI within 3½ months of the date of the information memorandum. The petitioner failed to comply with the aforesaid requirements and, therefore, they made themselves liable for being prosecuted for violation of provisions of the SEBI Act, 1992 and relevant Regulations. SEBI, directed the petitioner to refund the money collected under the Scheme to the investors within one month from the date of such direction. No information was received by SEBI whether the petitioner complied with this direction or not. Pursuant to the complaint lodged by SEBI, a notice was framed u/s 251 of the Code of Criminal Procedure. Before the case could proceed any further, an application was moved by SEBI seeking to treat the case as warrant case and frame formal charges instead of trying the case in a summary manner wherein notice was earlier framed. The Trial Court converted the case into a warrant case and notified the case for pre-charge evidence. While passing the aforesaid order, the Court took note of the fact that by virtue of an amendment in the year 2002 in the SEBI Act, Section 24(1) was amended and the punishment prescribed had increased.
The Petitioner challenged the order before the High Court, stating that the SEBI at the time of the filing of the criminal complaint was aware of the fact that there had been an amendment in Section 24 of the SEBI Act in the year 2002 but still made a prayer for issuance of summons and not treating the case as a warrant case. It was further argued that the proceedings commenced as if the case was a summons case, which proceeding continued from 2006 to 2011. It was argued that after eight years of filing of the complaint, an application was moved by the SEBI for amendment of the charge, which was wrongly allowed by the impugned order. It was further argued that since no charges were framed by the Trial Court, therefore, the application preferred by the SEBI for amendment of charge was misconceived.
Decision
The High Court dismissed the application of the petitioner. The Trial Court was directed to proceed with the case in the manner in which a warrant case was tried.
Reasoning
1. Complaint was filed after the amendment in the SEBI Act and, therefore, it was only a mistake in trying the aforesaid complaint as a summons case. Merely because the word ‘summons’ was used in the prayer of the complainant, the Court ought not to have treated it as a summons case and the same ground cannot be taken by the petitioner for challenging the order impugned.
2. In order to regulate the Collective Investment Schemes, for the benefit of investors as well as for promotion of legitimate investment activity, SEBI came out with Regulations in the year 1999 under the name Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1995 (CIS Regulations). In terms of the said Regulations, any person who, immediately prior to the commencement of CIS Regulations was operating a Collective Investment Scheme had to make an application to the SEBI for grant of registration within a period of two months.
3. Thus the complaint lodged by the SEBI for violation of the provisions of sections 11(B), 12(1B) of the SEBI Act, 1992 read with Regulation 5(1) read with Regulation 68(1), 68(2), 73 and 74 of the SEBI (CIS Regulations, 1999), punishable u/s 24(1) of the SEBI Act, was in the nature of a warrant case and it was only a mistake on the part of the Court as well as the SEBI in not treating it as a warrant case from the beginning.
4. The delay of eight years in realizing the mistake would not make the case a summons case. The cause of action, admittedly, has arisen after the amendment in the SEBI Act. Any mistake of law cannot be permitted to be perpetuated and no sooner the same is discerned, remedial measures ought to be taken.
Petitioner's application dismissed
