The Securities and Exchange Board of India (“SEBI”) in its order dated October 15, 2019 in respect of proceedings against Emgee Cables & Communications Limited (“ECC”) (Adjudication Order Ref No.: ORDER/SS/SK/2019-20/4938) dealt with the issue of whether adjudication proceedings initiated against a company can be proceeded with if a liquidation order has been passed.

Brief Facts:

In the present proceedings, SEBI vide a show cause notice (“SCN”) dated March 2, 2015 alleging that ECC had failed to resolve two complaints pending against them in the SEBI Complaints Redress System (“SCORES”). Out of the two complaints, earlier complaint was pending since 2011. SEBI contended that despite being called upon to do so, ECC failed to resolve those complaints within the time specified by SEBI, thereby rendering ECC liable for imposition of penalty under Section 15A (Penalty for failure to furnish information, return, etc.) and Section 15C (Penalty for failure to redress investors' grievances) of the SEBI Act, 1992. ECC had neither filed any reply nor had availed the opportunity of personal hearing despite service of SCN upon ECC.

During the proceedings, it was observed that an order was passed in the matter of M/s. Packwell (India) Private Limited v. Emgee Cables & Communications Limited (IA No. 117/JPR/2019 in CP (IB) No. 601 (ND)/2018 TA No. 69/2018) by the National Company Law Tribunal (“NCLT”), Jaipur Bench on September 18, 2019 vide which a liquidation order was passed against ECC and a liquidator was appointed.

Issue:

Whether the instant adjudication proceedings initiated against ECC can be proceeded with in view of the order passed by the NCLT, Jaipur Bench.

Decision:

While examining the abovementioned issue, the adjudicating officer relied on Section 279 of Companies Act, 2013 (corresponding to Section 446 of the erstwhile Companies Act, 1956) which provides for stay of suits, etc., on winding up order.

“Section 279, Companies Act, 2013: Stay of suits, etc., on winding up order. -

1. When a winding up order has been passed or a provisional liquidator has been appointed, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to such terms as the Tribunal may impose:

Provided that any application to the Tribunal seeking leave under this section shall be disposed of by the Tribunal within sixty days.

2. Nothing in sub-section (1) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.” (emphasis added)

Relying on the provisions of the Companies Act, 2013 and the judgment of Bombay High Court in the case of Deutsche Bank v. S.P. Kala, (1990) 67 Comp Cas 474, SEBI observed that it is mandatory to obtain the leave of the NCLT for commencing the instant proceedings against ECC. Further, SEBI held that, in the absence of the leave of NCLT, the present adjudication proceedings cannot be proceeded with.

This update has been contributed by Kartik Jigyasi (Associate).