SAT Quashes SEBI’s penalty of Rs. 20 lakhs on DHFL

Dewan Housing Finance Corporation Ltd. Vs SEBI (Securities Appellate Tribunal)

1. The present appeal has been filed questioning the legality and validity of the order dated 29^th May, 2020 passed by the Adjudicating Officer under section 15-1 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) whereby the authority has imposed a penalty on the appellant for a sum of Rs.20 lakhs under section 15A(b) and 15HB of the SEBI Act. By the impugned order, the appellant was directed to pay the amount within 45 days from the receipt of the impugned order failing which recovery proceedings would be initiated under section 28A of the Act.

2. The facts leading to the filing of the present appeal is, that the appellant is a housing finance company, and at present, is undergoing corporate insolvency resolution process. On 20^th November, 2019, the Reserve Bank of India (hereinafter referred to as ‘RBI’) suspended the board of directors of the appellant under section 45-IE(2) of the Reserve Bank of India Act, 1934 and appointed an administrator to manage the affairs of the company. On 29^th November, 2019 RBI filed a Company Petition before the NCLT under Rule 5(a)(1) of the Insolvency and Bankruptcy (Insolvency and liquidation proceedings of financial service provider and application to Adjudicating Authority) Rules, 2019 to initiate corporate insolvency resolution process against the appellant under the provisions of The Insolvency and Bankruptcy Code, 2016. The petition was admitted by NCLT by an order of 3^rd December, 2019 and the administrator was appointed as the resolution professional. The moratorium provided under section 14 came in force upon the filing of the application by RBI under Rule 5(a)(i) of the Insolvency and Bankruptcy (Insolvency and liquidation proceedings of financial service provider and application to Adjudicating Authority) Rules, 2019 on 29^th November, 2019 in view of Rule 5(b) of the said rules.

3. On 24^th December, 2019, the adjudicating officer issued a show cause notice to the appellant under Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to show cause as to why penalty should not be imposed for non­compliance of the provisions of Regulation 16(1) of Securities and Exchange Board of India (Issue of Listing of Debenture Securities) Regulations, 2008 (hereinafter referred to as ‘ILDS Regulations’) read with Rule 18(7)(b)(ii) and 18(7)(c) of Companies (Share Capital and Debentures) Rule, 2014 (hereinafter referred to as ‘Share Capital and Debenture Rules”) and Regulation 52(1) read with Regulation 52(4) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as ‘LODR Regulations”).

4. The show cause notice alleged that the appellant failed to create requisite debenture redemption reserve and failed to invest 15% of the amount of non-convertible debentures maturing as on 31^st March, 2020 as required under the ILDS Regulations and failed to submit the audited financial result and line items as prescribed in the LODR Regulations.

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