Skip to main content

IBC & RBI circulars do not have primacy over each other

Citation : Reserve Bank of India vs SREI Infrastructure Finance Limited, CP (IB) No.295/KB/2022 and Hemant Kanoria vs Srei Infrastructure Finance Limited, Through its Administrator, Mr Rajneesh Sharma, IA (IB) No.75/KB/2022

Date of Judgment/Order : 17 May 2022

Court/Tribunal : The National Company Law Tribunal, Kolkata

Corum : Rajasekhar V.K. Member (Judicial) and Balraj Joshi Member (Technical)

Background

SIFL and SEFL are under Corporate Insolvency Resolution Process (“CIRP”) from 08 October 2021, and Mr Rajneesh Sharma was appointed as the Administrator of SIFL and SEFL.

Axis Bank Limited and UCO Bank appointed KPMG as auditor for SIFL on 23 March 2021. As per the RBI Circular, KPMG was required to complete the audit and give a report within a period of three months from the date of the Joint Lenders Forum (“JLF”) meeting authorising the same. In the present case, the Core Committee Meeting was held on 24 March 2021. Thus, KPMG was required to complete the audit within 24 June 2021. However, KPMG continued with the audit of SIFL even after the initiation of CIRP. Following the initiation of CIRP against SEFL and SIFL, the Administrator appointed BDO India LLP (“BDO”) as the transaction auditor of SEFL and SIFL under the Code on 02 November 2021 to probe vulnerable transactions.

The Applicants filed application objecting that the Insolvency Code had an overriding effect and once a transactional auditor has been appointed under the Code, a previous audit cannot continue.

Judgment

The Hon. NCLT opined that the trial of offences by a Special Court in terms of section 236 of the Code would be restricted to offences under the Code, as laid down by sub-section (1) thereof. Fraud by a banking official, for instance, would not be an offence under the IBC, but under other laws. The scope, purpose and objective of the audit under the RBI is not only to look into the transactions from the perspective of the corporate debtor now functioning under an independent professional, but also to unearth criminality, if any, on the part of bank officials too. Therefore, to say that the KPMG audit should either be stopped, rescinded or otherwise consigned to the bin, is not something that commends itself to us.

Therefore, we hold that this Adjudicating Authority, with the powers vested under the Insolvency & Bankruptcy Code, 2016, lacks the jurisdiction to stop an audit commissioned under RBI circulars, the intent of which is altogether different.

Therefore, the Code and the RBI circulars work in different fields and are, in a manner of speaking, disjoint sets. The adequacy or otherwise of KPMG’s audit report would no doubt be determined by the lenders. We do not see any possibility of conflict between the two. There is no question of one prevailing over the other.

Comments

Post a Comment

Most viewed this month

Deposit Of Minimum 20% Fine/Compensation U/s 148 NI Act Mandatory

In OP(Crl.).No.348 OF 2019, T.K.SAJEEVAN vs FRANCIS T.CHACKO, the appeal was filed against the order of the lower court to deposit 25% of the fine before filling of appeal. The appellant argued that the deposit introduced through the Section 148 of the NI Act after amendment was directory in nature as it used the term 'may' while mentioning the issue of deposit. The Kerala High Court however disagreeing held that in view of the object of the Legislature while incorporating Section 148 into N.I. Act, the word 'may' will have to be read as 'shall'. The imposition of payment contemplated under Section 148 N.I. Act cannot be restricted to some prosecutions and evaded in other prosecutions. Since the amount directed to be deposited being compensation, undoubtedly, it is liable to be ordered to be deposited irrespective of the nature of the prosecution. Therefore, the word 'may' can only be taken to have the colour and meaning of 'shall' and there
Post a Comment
Read more

NCLT - Mere admission of receipt of money does not qualify as a financial debt

Cause Title : Meghna Devang Juthani Vs Ambe Securities Private Limited, National Company Law Tribunal, Mumbai, CP (IB) No. 974/MB-VI/2020 Date of Judgment/Order : 18.12.2023 Corum : Hon’ble Shri K. R. Saji Kumar, Member (Judicial) Hon’ble Shri Sanjiv Dutt, Member (Technical) Citied:  Carnoustie Management India Pvt. Ltd. Vs. CBS International Projects Private Limited, NCLT Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors. (2019) Sanjay Kewalramani vs Sunil Parmanand Kewalramani & Ors. (2018) Pawan Kumar vs. Utsav Securities Pvt Ltd 2021 Background Application was filed under section 7 of the Insolvency and Bankruptcy Code, 2016 alleging loan of Rs, 1.70 cr is due. The Applicate identified herself as the widow and heir of the lender but could not produce any documents proving financial contract between her Late husband and the CD but claimed that the CD has accepted that money was received from her husband. The applicant subsequently filed rejoinder claiming the debt t
Post a Comment
Read more

Vanishing promoters and languishing shareholders

Over Rs 60,000 crore of shareholders’ wealth is stuck in 1,450 companies suspended by the stock exchanges. More importantly, near 100 per cent pledging of promoter holding appears to be common in many of these companies. This, almost rules out any chance of the companies bouncing back. The suspension is for non-compliance of the listing norms. Vanishing Companies - Definition As per the definition stipulated by SEBI, any listed company, which raised moneythrough initial public offer and, thereafter, stopped operations, did not file returnseither with the RoC or SEBI and did not exist on the registered premises wastermed as vanishing.There are provisions under Companies Act under which companies are termedvanishing companies on satisfying certain conditions. it is provided a companywould be deemed to be a vanishing company, if it satisfies all the conditions given below : a) Failed to file returns with Registrar of Companies (ROC) for a period of two years; b) Failed to fil
3 comments
Read more