NCLAT Chennai Rules, SEBI-Imposed Penalty Qualifies As A 'Fine' & Is An 'Excluded Debt' U/S 79(15)(A) Of IBC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member), has upheld an order passed by the Adjudicating Authority (NCLT, Hyderabad) that recognized a penalty imposed by SEBI as a “fine” and therefore classified it as an “excluded debt” under Section 79(15)(a) of the Insolvency and Bankruptcy Code (IBC), 2016. Consequently, the said penalty was held to be outside the purview of bankruptcy proceedings under Section 122 of the Code.
Background
The appellant, Mrs. G.V. Marry, was the personal guarantor to BRG Energy Ltd. Following the failure of a personal insolvency resolution process initiated under Section 94(1) of the IBC, she filed an application under Section 122(1) seeking initiation of bankruptcy proceedings. The Adjudicating Authority, while admitting the application on 23.01.2025, declared her bankrupt and also made a crucial observation that the SEBI-imposed penalty on her constituted a “fine” and thus was an “excluded debt” within the meaning of Section 79(15)(a) of the IBC.
This specific observation — which kept the SEBI penalty outside the scope of bankruptcy resolution — was challenged in appeal by the appellant.
Appellant's Contentions
The appellant argued that the penalty levied by SEBI could not be treated as a “fine” as contemplated under Section 79(15)(a) of the IBC, which excludes liabilities arising from fines imposed by a court or tribunal from bankruptcy proceedings. It was contended that such classification was erroneous and that the Adjudicating Authority had wrongly brought SEBI’s penalty within this statutory exclusion.
The appellant relied on the judgment of a single bench of the Telangana High Court in W.P. No. 34761 of 2021, asserting that the SEBI demand notice under Section 28A of the SEBI Act cannot override the IBC framework and should not be interpreted as a fine excluded from the resolution process.
NCLAT’s Findings
The Tribunal examined the legislative scheme under Section 79(15)(a) of the IBC, which defines “excluded debt” to include “liability to pay fine imposed by a court or tribunal.” The NCLAT emphasized that once a special statute such as the IBC carves out certain liabilities from the scope of resolution, courts must interpret such exclusions in accordance with legislative intent.
The NCLAT observed that the Telangana High Court’s ruling referred to by the appellant was context-specific and dealt with the validity of a SEBI demand notice under Section 28A of the SEBI Act, 1992. It noted that the Single Judge’s conclusion—that SEBI’s penalty was not covered by the moratorium under Section 96 of the IBC—was upheld in appeal by a Division Bench, which explicitly left the question of whether the penalty qualifies as a “fine” under Section 79(15)(a) open for appropriate adjudication in future proceedings.
In the present case, the Tribunal held that the appropriate proceedings had arisen, and the question of whether SEBI’s penalty qualified as a fine had to be answered directly. The bench held: “Once a special statute creates a bar and does not include within itself the debts in the shape of a fine, it has to be excluded as debt; the same cannot be read in other way than what was intended by the legislature.”
The Tribunal further supported its view by referring to the Supreme Court’s decision in Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth & Ors. [Civil Appeal No. 4048 of 2024], which upheld the principle that liabilities classified as “excluded debt” under Section 79(15) — including fines and penalties — do not form part of the dischargeable debt under insolvency resolution. The Apex Court had clarified that such liabilities are statutory or penal in nature and fall outside the insolvency estate.
Verdict
Affirming the NCLT’s reasoning, the NCLAT held that SEBI’s penalty on the appellant was rightly treated as a “fine” under Section 79(15)(a) and thus excluded from the bankruptcy proceedings initiated under Section 122 of the IBC. The Tribunal concluded: “The observation of the Adjudicating Authority treating the penalty levied by SEBI as ‘excluded debt’ and thereby keeping it outside the bankruptcy proceedings was well in consonance with statutory provisions and cannot be termed arbitrary.” Accordingly, the appeal was dismissed for lack of merit, and all pending interlocutory applications stood closed.
Appearance
For Appellant: Mr. M.L. Joseph
For Respondent: Mr. Rahul Unnikrishnan, Advocate for R3
Cause Title: Mrs. G.V. Marry V. Securities And Exchange Board Of India
Case No: Company Appeal (AT) (CH) (Ins) No.165/2024 (IA No. 450/2025)
Coram: Justice Sharad Kumar Sharma [Member (Judicial)], Jatindranath Swain [Member (Technical)]
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