SAT Mumbai quashes multiple SEBI penalties imposed pre-acquisition after IBC resolution, citing Sections 31 and 32A, affirming liability extinguishment upon plan approval.
SAT Bars SEBI Penalties Post-IBC Resolution
In a series of consistent rulings, the Securities Appellate Tribunal (SAT), Mumbai, has quashed SEBI penalties ranging from Rs. 2 lakh to Rs. 46 lakh against corporate debtors including Bhushan Power & Steel and Raj Oil Mills, where penalties were related to violations preceding IBC resolution.
The tribunal relied on Sections 31 and 32A of the Insolvency and Bankruptcy Code, 2016, holding that a NCLT-approved resolution plan discharges prior liabilities and insulates the corporate debtor from fresh penalties. The decisions follow the precedent set in Monnet Ispat & Energy Ltd. v. Union of India, affirming that regulatory penalties not crystallized before resolution are extinguished post-approval.
"Once the resolution plan is approved, the corporate debtor undergoes a fresh start... proceedings based on pre-existing defaults cannot be sustained."
While SEBI may initiate action against promoters or defaulting entities during the relevant period, the corporate entity itself is shielded. This clarifies a critical intersection between insolvency and securities law, guiding enforcement strategy and appeal decisions.
Citations
- Monnet Ispat & Energy Ltd. v. Union of India
