If all types of dues, including ‘regulatory dues,’ can trigger the insolvency resolution

process, the entire purpose of the IBC will be lost, and insolvency proceedings will turn into
recovery proceedings for creditors' dues, which is not the object of the IBC.

BSE Ltd. v. Asahi Infrastructure & Projects Ltd.

Forum: National Company Law Appellate Tribunal

Order Date: December 21, 2021

Bench: Justice Ashok Bhushan [Chairperson] Dr.

Alok Srivastava [Member (Technical)]

Relevant Sections: Insolvency and Bankruptcy Code, 2016

(hereinafter IBC)- Sec. 5, Sec. 9, Sec. 14,
Sec. 30, and Sec. 61

Brief Background:

The present has been filed under Sec. 61 of IBC against the order of NCLT (Mumbai Bench).
The Appellant has applied under Sec. 9 of IBC against the corporate debtor. The Appellant’s
case was that Corporate Debtor failed to pay listing fees as required by Clause 38 of the Listing
Agreement. The Corporate Debtor objected to the application and requested that it be dismissed
at the preliminary stage due to its inability to be maintained. The Corporate Debtor argued that
the Operational Creditor’s listing fees are due under Regulation 14 of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015. The fee is categorized as a
‘regulatory fee,’ rather than an ‘operational debt.’ The NCLT dismissed the application under
Section 9 because the ‘regulatory fee’ owed could not be considered an ‘operational debt.’

The Appellant contended that the Adjudicating Authority erred in rejecting the application
because the definition of “operation debt” as defined in Sec. 5 sub-section (21) did not include
the Appellant’s debts. They also claimed that because the SEBI has not established a procedure
for recovering unpaid ‘listing fees,’ the Appellant’s filing of the Application under Section 9 of
the IBC cannot be excused. The 2015 Regulation does not specify a mechanism for recovering
the Annual Listing Fees, only penalties for non-compliance. The Appellant relied on the case of
Sales Tax Department, State of Maharashtra Through Deputy Commissioner of State Tax vs.
M/s Raj Oil Mills Limited & Ors.[ Company Appeal (AT) (Insolvency) no. 309 of 2018] wherein
it was held that statutory dues including Income Tax and Value Added Tax are ‘operational
debt.’

Issue:

Whether the claim of the Appellant regarding listing fee and its arrears are ‘operational debt’
within the meaning of IBC?

Decision:

The Tribunal upheld the judgment of NCLT and held that AA did not commit any error in
rejecting the application under Section 9 filed by the Appellant. The Tribunal rejected the
arguments of the Appellants that there is no method for recovery of dues provided by the SEBI.
The Tribunal held that SEBI has the authority to punish defaulters for recovering regulatory
dues. The SEBI Act and the circulars issued by the SEBI from time to time contain numerous
provisions for recovering. Further on the question of including ‘regulatory dues’ under
‘operational debt,’ the Tribunal referred to the case of Swiss Ribbons Private Limited & Anr. vs.
Union of India and Ors.[(2019) 4 SCC 17] and held that:

“If it is held that all types of dues, including ‘regulatory dues,’ can trigger the insolvency
resolution process, then the entire purpose of the IB Code will be lost, and insolvency
proceedings will turn into recovery proceedings for creditors’ dues, which is not the object of
the IBC.”

Further, the Tribunal rejected the argument of Appellant that the Resolution Professional has
challenged the Adjudicating Authority’s decision, claiming that the Moratorium provided for in
Sec. 14 of the IBC does not apply to Regulatory Authorities. The Tribunal believed that the
Resolution Professional had appealed the AA’s decision, claiming that The Moratorium does not
cover regulatory Authorities under Sec. 14 of the IBC. Thus, the Tribunal upheld the decision of
the AA and held that the Appellant had initiated insolvency proceedings against the Corporate
Debtor solely as a means of recovering ‘listing fees’ owed to it. The IBC is not intended for the
collection of creditors’ debts.

Comments: