Securities Appellate Tribunal stays SEBI proceedings against DHFL

Our Bureau. Mumbai | Updated on July 20, 2020

The Securities Appellate Tribunal (SAT) has asked SEBI to halt its recovery proceedings against Dewan Housing Finance (DHFL), which has moved the tribunal against the market regulator’s order. DHFL has currently got moratorium under the Insolvency and Bankruptcy Code (IBC).

“The question that arises for consideration is whether the SEBI could initiate proceedings in spite of issuance of a moratorium under Section 14 of the IBC. This aspect requires consideration,” said SAT, directing SEBI to submit a reply on this issue within four weeks.

Sonam Chandwani, Managing Partner at KS Legal & Associates, said: “Although the SAT’s direction barring SEBI from making recoveries during the pendency of an appeal is in consonance with general law of the land, it will invariably exacerbate the problem of mounting defaults.”

Chandwani is of the view that DHFL’s move challenging initiation of proceedings by SEBI is in consonance with the precedents and attempts to block any insidious attempts by the capital markets regulator to override the primacy of the IBC. But permitting SEBI such sweeping regulatory powers would lead to a confidence deficit among potential investors and deter successful resolutions under the IBC, which is currently in the radar of most financial circles.

“In hindsight, the NCLAT bench has found that Section 14 of the IBC will prevail over Section 28A of the SEBI Act, 1992, and SEBI cannot recover any amount, including the penalty from the corporate debtor, nor can sell the assets of the corporate debtor during the moratorium period.

The subsisting embargo on provisions under the IBC and EMI holiday announced by the RBI in light of the pandemic have to lead to financial institutions sitting on bad debts longer than expected with even slower recoveries in the post-pandemic era,” said Chandwani.

In a separate order SAT has stayed an order passed by the National Stock Exchange (NSE) against Edelweiss Broking and has directed both parties to submit their replies. In 2017, NSE had imposed a penalty of ₹1.8 crore on Edelweiss for non-adherence to leverage and exposure limits while granting margin trading facility.

“We stay the effect and operation of the impugned order provided the appellant deposits 50 per cent of the amount of the penalty within three weeks, which shall be kept in an interest bearing escrow account and would be subject to the result of the appeal,” the tribunal said in an order.

Published on July 20, 2020

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