SAT Mumbai ruled that an approved resolution plan under IBC bars SEBI from imposing penalties on a corporate debtor, though penalties on defaulting directors may still apply.
SAT Quashes SEBI Penalty Post-IBC Resolution
The Securities Appellate Tribunal (SAT), Mumbai, has set aside a SEBI penalty imposed on DCHL, holding that once a resolution plan is approved under the Insolvency and Bankruptcy Code (IBC), the corporate debtor cannot be penalized for past regulatory violations. The decision underscores the primacy of the IBC framework in restructuring distressed entities.
While affirming that the approved resolution plan extinguishes liability for the corporate entity, SAT upheld findings of misconduct against certain directors and reduced their individual penalties. The Tribunal emphasized that personal liability for regulatory breaches is distinct from corporate liability and survives resolution proceedings.
A resolution applicant steps into the shoes of the erstwhile promoter, and penalizing the new management for pre-existing defaults undermines the rehabilitative objective of the IBC.
This decision has significant implications for regulatory enforcement. It clarifies that while SEBI can pursue actions against individuals, it cannot impose sanctions on a company emerging from insolvency. Corporate insolvency professionals and securities lawyers must now carefully delineate between entity and personal liability in compliance and defence strategies.
Citations
- In re DCHL, Appeal No. [Number]/2025 (SAT Mumbai)
