Case Note & Summary
The appellant, Ms. G.V. Marry, was a personal guarantor to BRG Energy Ltd., a company incorporated in 2006 under the Companies Act, 1956. She filed an application under Section 122(1) of the Insolvency and Bankruptcy Code, 2016, read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtor) Rules, 2019, seeking bankruptcy after the failure of the personal insolvency process. The Adjudicating Authority (NCLT Hyderabad) admitted the application and declared her bankrupt under Section 126 of the IBC, but observed that a penalty imposed by SEBI on the appellant, being pecuniary in nature, would come within the meaning of 'fine' under Section 79(15)(a) of the IBC and thus be treated as 'excluded debt' outside the scope of bankruptcy proceedings. Aggrieved by this observation, the appellant appealed to the NCLAT. The NCLAT examined the definition of 'excluded debt' under Section 79(15)(a), which includes 'fine' imposed by a court or tribunal. The Tribunal noted that SEBI is a statutory authority empowered to impose penalties for violations of securities laws, and such penalties are akin to fines. The NCLAT held that the SEBI penalty is a 'fine' within the meaning of Section 79(15)(a) and therefore an excluded debt not dischargeable in bankruptcy. The appeal was partly allowed, modifying the impugned order to the extent that the SEBI penalty is excluded from the bankruptcy proceedings, while the rest of the order declaring the appellant bankrupt was upheld.
Headnote
A) Insolvency and Bankruptcy Code - Excluded Debt - Section 79(15)(a) - Fine - SEBI Penalty - The issue was whether a penalty imposed by SEBI on a personal guarantor is a 'fine' under Section 79(15)(a) of the IBC, 2016, and thus an 'excluded debt' not dischargeable in bankruptcy. The NCLAT held that the SEBI penalty, being pecuniary in nature and imposed for violation of securities laws, falls within the meaning of 'fine' under Section 79(15)(a) and is excluded from the bankruptcy discharge. (Paras 1-14) B) Insolvency and Bankruptcy Code - Bankruptcy of Personal Guarantor - Section 122(1) - Application for Bankruptcy - The appellant, a personal guarantor to BRG Energy Ltd., filed an application under Section 122(1) of the IBC, 2016, for bankruptcy after failure of the personal insolvency process. The NCLAT upheld the admission of the bankruptcy petition but modified the order to exclude the SEBI penalty from the bankruptcy proceedings. (Paras 2-14)
Issue of Consideration
Whether a penalty imposed by SEBI on a personal guarantor constitutes a 'fine' under Section 79(15)(a) of the Insolvency and Bankruptcy Code, 2016, and thus is an 'excluded debt' not dischargeable in bankruptcy proceedings.
Final Decision
The appeal is partly allowed. The impugned order of NCLT Hyderabad dated 23.01.2025 is modified to the extent that the SEBI penalty is held to be an 'excluded debt' under Section 79(15)(a) of the IBC, 2016, and is outside the scope of bankruptcy proceedings. The rest of the order declaring the appellant bankrupt is upheld.
Law Points
- Bankruptcy
- Personal Guarantor
- Excluded Debt
- Fine
- SEBI Penalty
- Section 79(15)(a) IBC
- Section 122(1) IBC
- Section 126 IBC
- Insolvency and Bankruptcy Code
- 2016
