Will provisions of Insolvency & Bankruptcy Code override SEBI Act?

The non-obstante provision contained in the Insolvency and Bankruptcy Code, 2016 (IBC) was put to test before the Mumbai Bench of NCLT. The NCLT had to decide its applicability in the backdrop of proceedings pending before the Securities and Exchange Board of India (SEBI), on the same subject matter..Brief facts of the case are that two operational creditors of Pancard Clubs Ltd. (Pancard), approached the NCLT for initiation of corporate insolvency resolution process following a default made by Pancard as a construction contractor. While Pancard defended its stance by submitting that there existed a dispute in the form of an arbitration proceeding under Section 11(4) of the Arbitration Act, 1996, the NCLT took note of prior proceedings against Pancard initiated by the SEBI..SEBI had realised that Pancard was operating more like a ponzi scheme and indicted it for launching a Collective Investment Scheme (CIS) without registering itself as a Collective Investment Management Company, thereby violating Regulation 3 of SEBI (CIS) Regulations..SEBI had, therefore, passed orders which inter alia prohibited Pancard from disposing or alienating assets of the company, except for making refunds to investors and winding up of the existing CIS. This was apart from the reference made to State Government/Local Police to initiate civil/criminal case against the company, its promoters, its directors and managers. This order was passed by SEBI in February 2016 was upheld by the SAT in May 2017..The Bench observed that SEBI’s order freezing the assets of the company will directly conflict an order of admission, which enforces a moratorium on the very same assets. Thus, the question which arose before the NCLT was whether the non-obstante provision of IBC will override an order passed by SEBI on the same assets..Section 238 of the IBC, which is the non-obstante provision reads as follows,.“The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”.The Bench dismissed the petition on two grounds:.1. That the IBC and SEBI Act have no overlapping effect insofar as IBC deals with creditor/debtor issues whereas SEBI act deals with investor protection issues. Since the non-obstante provision applies only to laws inconsistent with the operation of IBC and isn’t a blanket overriding effect, it cannot be applied in this case. Further, since the subject matter of this case modifies rights and obligations over an asset upon which already SEBI order is in action, no order could be passed invoking section 238 jurisdictions to nullify SEBI order.2. That there exists no enforceable agreement between the parties in this case, since Pancard wasn’t registered with SEBI as a CIS. Owing to lack of lawful agreement recognisable by SEBI creating jural relationship between the petitioner and the company, the relationship between the petitioner and the corporate debtor couldn’t be considered either a relation in between the investor and the company or as relation in between the creditor and debtor..(Read the order)