SAT Mumbai overturns SEBI penalty after IBC resolution plan approval in ArcelorMittal Nippon Steel India Limited Vs SEBI

Background and context

The Securities Appellate Tribunal, Mumbai examined whether SEBI can continue adjudication and impose monetary penalty on a corporate debtor for past disclosure lapses under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 once a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC) has been approved and implemented.

The dispute arose from an order of the Adjudicating Officer of SEBI dated March 28, 2022, whereby a penalty of Rs. 2 lakhs was levied on ArcelorMittal Nippon Steel India Limited in relation to alleged non-compliances by Essar Steel India Limited (later known as ArcelorMittal Nippon Steel India Limited) concerning listed non-convertible debt securities.

The core legal issue was whether such proceedings and penalty survive after:

  • admission of the corporate debtor into corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016,
  • approval of a resolution plan by the National Company Law Tribunal (NCLT), and
  • affirmation of the resolution plan by the Supreme Court in Essar Steel India Limited CoC vs. Satish Kumar Gupta, 2020 (8) SCC 531, which recognised the “clean slate” principle for the successful resolution applicant.

Procedural history

  • Essar Steel India Limited had issued and listed non-convertible debt securities in 2011.
  • SEBI alleged that there were disclosure failures under various provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) during the period from December 2015 to March 2019.
  • A show cause notice dated October 18, 2019 was issued, asking why penalty under Section 15A(b) of the SEBI Act should not be imposed.
  • Meanwhile, Essar Steel India Limited had already entered into the corporate insolvency resolution process:
    • NCLT admitted a petition under the Insolvency and Bankruptcy Code, 2016 on August 02, 2017.
    • A Resolution Professional was appointed on February 08, 2019.
    • A resolution plan submitted by ArcelorMittal Nippon Steel India Limited was approved by the Committee of Creditors and then sanctioned by NCLT.
    • NCLT upheld the resolution plan on July 04, 2019.
    • The Supreme Court, by judgment dated November 15, 2019 in Essar Steel India Limited CoC vs. Satish Kumar Gupta, 2020 (8) SCC 531, affirmed the resolution plan and emphasised that the successful resolution applicant must take over the corporate debtor free from further claims for past liabilities beyond the resolution plan.
    • The management of Essar Steel India Limited was taken over by ArcelorMittal Nippon Steel India Limited on December 16, 2019.

Despite this insolvency resolution backdrop, SEBI proceeded with the adjudication and, through the order dated March 28, 2022, imposed a penalty of Rs. 2 lakhs for violations of specified LODR provisions.

Alleged regulatory violations

The Adjudicating Officer’s order was based on alleged non-disclosures and non-compliances by Essar Steel India Limited under the following provisions of the LODR Regulations:

  • Regulation 51(1)
  • Regulation 51(2) read with Part B of Schedule III (Clause A1, A4, A9)
  • Regulation 52(1)
  • Regulation 52(4)
  • Regulation 52(5)
  • Regulation 52(7)
  • Regulation 54(2)
  • Regulation 57(1)

According to SEBI, the disclosures required in terms of these provisions were not made in respect of the listed non-convertible debt securities for the period from December 2015 to March 2019.

The show cause notice dated October 18, 2019 continued to treat Essar Steel India Limited (which had subsequently become ArcelorMittal Nippon Steel India Limited) as liable for these alleged defaults notwithstanding the insolvency proceedings and the resolution plan.

Stand of the assessee before SAT

ArcelorMittal Nippon Steel India Limited argued before the Securities Appellate Tribunal that: