In an interesting Order, the Securities Appellate Tribunal (SAT), in the case of Dewan Housing, directed the Securities and Exchange Board of India (SEBI) to halt proceedings against Dewan Housing Finance Corporation Limited (DHFL) and quashed the order of the SEBI imposing penalty on DHFL.


  • Corporate Insolvency Resolution Process (CIRP) was instituted against DHFL and thus, moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was imposed on DHFL.
  • During the moratorium, the Adjudicating Officer of SEBI issued a notice to DHFL to show cause as to why penalty should not be imposed on it for non-compliance of various SEBI regulations dealing with the creation of `Debenture Redemption Reserve` and submission of audited financial results.
  • DHFL contended that due to the moratorium under IBC in place, no proceedings could be initiated against it. However, the Adjudicating Officer of SEBI vide an Order (SEBI Order) imposed a penalty of Rs 20 lacs on DHFL for non-compliance of various SEBI regulations.
  • In light of the above circumstances, DHFL challenged the SEBI Order before SAT.

The Securities Appellate Tribunal held:

  • SEBI argued on mainly on two grounds:- (a) the moratorium declared under IBC would be applicable only to the enforcement / recovery of the determined liability and not to proceedings for assessing or determining the liability; (b) that moratorium is only applicable to creditors and not to regulators like the SEBI.
  • SAT rejected SEBI’s argument and held that the word ‘proceedings’ under Section 14 of the IBC would cover the proceedings initiated by SEBI against DHFL.
  • SAT placed reliance on the judgments of the Supreme Court in Alchemist ARC case and Innoventive Industries case, and held that in cases where moratorium has been declared under the IBC, Adjudicating Officer of SEBI does not have jurisdiction to proceed under the SEBI laws / regulations against a corporate debtor (DHFL in the present case).
  • It also rejected the contention of the SEBI that moratorium is only applicable to creditors and not to regulators like the SEBI. Placing reliance on previous judgments of the National Company Law Tribunal (NCLT), inter alia, in case of Ms Anju Agarwal vs Bombay Stock Exchange & Others, wherein it was held that in case of contradictions, Section 14 of the IBC would prevail over Section 28A of the SEBI Act (provision dealing with the imposition of penalties), SAT held that SEBI cannot recover any penalty from DHFL.
  • Thus, SAT quashed the order of SEBI imposing penalty on DHFL. It also quashed the show cause notice and the proceedings for recovery of the penalty, as no proceedings could be instituted due to the moratorium.

MHCO Comment :

The order of the SAT is an interesting development. The order delves into and interprets Section 14 of the IBC, which might be beyond the jurisdiction of the SAT, as the NCLT would be an appropriate forum to decide the same. Further, this order effectively bars regulators like the SEBI, the Reserve Bank of India, Insurance Regulatory and Development Authority, from penalising entities for violation of its regulations. It would be interesting to see whether SEBI files an appeal against this order of the SAT.

This update was released on 03 Nov 2020.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or for any assistance.

Legal Update Team
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