Once resolution has been approved in respect of corporate debtor it becomes binding on all creditors including Govt

  • Corporate Law
  • Case Law
  • Financeseva

In the instant case, pursuant to petition to initiate corporate insolvency proceedings, the appellant-Corporate debtor's resolution plan was approved by the NCLT.  

Thereafter, the market regulators, SEBI had issued a show cause notice alleging that the appellant had issued non-convertible debenture securities in 2013-14 but failed to make necessary disclosures as required under SEBI (LODR) Regulations. 

The Appellant contended that since resolution plan had been approved by the NCLT, all financial liabilities, past or future was deemed to be extinguished by virtue of NCLT order and that no show cause notice or fresh proceedings against appellant could be initiated nor any penalty could be imposed, and action could be taken only against erstwhile promoters or against those persons who were in-charge of management of company prior to commencement of resolution plan. 

As a result, the SEBI held that penalties should be imposed since the necessary disclosures under sections 52 (4) and 54 (2) of LODR Regulations were not made. On appeal, the Appellate Tribunal observed that once a resolution plan has been approved in respect of the corporate debtor, it becomes binding on all creditors including Government and local authorities including SEBI.  

It was no longer open to the SEBI to issue a show cause notice or adjudicate and pass a penalty order on the appellant, so impugned order could not be sustained and was to be quashed.