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 Therefore, to say that the KPMG audit should either be stopped, rescinded or otherwise consigned to the bin, is not something that commends itself to us.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

Appellate authorities under Special Statutes cannot be asked to condone delay

Madras High Court in R.Gowrishankar vs. The Commissioner of Service Tax has held that Appellate authorities cannot be asked to condone the delay, beyond the extended period of limitation A Division Bench comprising of Justices S. Manikumar and D. Krishnakumar, made this observation while considering an appeal filed against Single Bench order declining to set aside the order made in the condone delay petition filed by the petitioner to condone 223 days in filing the appeal before the Commissioner of Service Tax (Appeals). Article referred: http://www.livelaw.in/appellate-authorities-special-statutes-cannot-asked-condone-delay-beyond-extended-period-limitation-madras-hc/
Post a Comment
Read more

'Seize assets to pay damages to accident victim'

Her story might be an inspiration for the physically challenged but justice has remained elusive for her. In 2008, a bus accident left research engineer S Thenmozhi, 30, paraplegic. In April 2013, the motor accident claims tribunal directed the Tamil Nadu State Transport Corporation (TNSTC) to provide her a compensation of 57.9 lakh. However, TNSTC refused to budge and on Tuesday a city court ordered attaching of movable assets of the transport corporation. Thenmozhi was employed in C-DOT, a telecom technology development centre in Bangalore. On July 21, 2008, she was coming to Chennai in a private bus. Around 2am, the bus had a flat tyre and the driver parked it on the left side of the road near Pallikonda in Vellore district on the Bangalore-Chennai highway. While the tyre was being changed, a TNSTC bus of Dharmapuri division hit the stationary bus. The rear part of the bus was smashed and passengers were injured. Thenmozhi who had a seat at the back of the bus suffered...
Post a Comment
Read more

Mumbai ITAT rules income of offshore discretionary trust is subject to tax in India

The Mumbai Income Tax Appellate Tribunal (ITAT) has recently determined the following issue in the affirmative in the case of Manoj Dhupelia: Should the income of an offshore discretionary trust be subject to tax in India, if no distributions have been made to beneficiaries in India? The question arose from appeals filed by individual beneficiaries in relation to a Lichtenstein-based trust, the Ambrunova Trust and Merlyn Management SA (the Trust) with the ITAT. It is important to note that the individuals in this case were amongst those first identified by the Government of India (GOI) as holding undeclared bank accounts in Lichtenstein. The ITAT ruling raises the following issues: Taxation of Trust Corpus: ITAT classified the corpus of the trust as "undisclosed income" and declared it taxable in the hands of the beneficiaries. Taxation of Undistributed Income: ITAT refused to draw a distinction between the corpus and undistributed income from the trust and declared i...
Post a Comment
Read more