The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, has held that penalties imposed by the Securities and Exchange Board of India (SEBI) after the commencement of liquidation proceedings under the Insolvency and Bankruptcy Code (IBC) cannot be admitted as claims.
The tribunal clarified that only liabilities that arise on or before the liquidation commencement date qualify for consideration under the IBC framework.
A Bench of the NCLAT delivered the ruling in Securities and Exchange Board of India v. Rajiv Bajaj, Liquidator M/s Annies Apparel Pvt. Ltd.
The decision reinforces the principle that insolvency proceedings require certainty and a strict cut-off date for claims.
The dispute arose after SEBI imposed a monetary penalty on the corporate debtor after liquidation proceedings had already begun. SEBI sought to include the penalty amount as a claim in the liquidation process. However, the liquidator rejected the claim, stating that the liability did not exist on the liquidation commencement date
SEBI challenged this decision before the NCLAT.
The tribunal held that liquidation under the IBC is designed to ensure finality in claims. It emphasised that only pre-existing liabilities can be admitted during liquidation.
The NCLAT observed that a penalty imposed after liquidation does not qualify as a debt existing before the commencement date. It further stated that allowing such claims would disrupt the orderly distribution of assets among creditors.
The tribunal added that insolvency law does not permit the inclusion of evolving liabilities once liquidation has begun.
Addressing the interplay between regulatory enforcement and insolvency law, the NCLAT acknowledged SEBI’s authority to impose penalties under securities law. However, it clarified that such powers cannot override the statutory framework of the IBC during liquidation.
The tribunal held that while post-liquidation penalties may remain enforceable under applicable regulatory laws, they cannot be enforced through the IBC liquidation process.
The ruling strengthens the principle that statutory timelines under insolvency law are decisive. It ensures certainty in liquidation proceedings and prevents the introduction of new liabilities after the cut-off date.
Case Title: Securities and Exchange Board of India v. Rajiv Bajaj, Liquidator M/s Annies Apparel Pvt. Ltd.
