2019 (11) TMI 67 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to pay the due payable financial debt - whether the debt falls within the meaning of Financial Debt in terms of Section 5(8) of the Code of 2016? HELD THAT - As per Section 3(8) of the Code of 2016 a CD means a corporate person who owes a debt to any person and as per Section 3(7) a corporate person is a company a LLP or any other person but shall not include any financial service provider. That is to say that since a financial service provider is excluded from the definition of corporate person it can also not be a CD. Further since Part 2 of the IBC applies to Insolvency Resolution and Liquidation for corporate persons and since a financial service provider including an NBFC is excluded from the definition of a corporate person and CD provisions of Part 2 of the IBC do not become applicable in the case of a financial service provider. Hence no creditor can seek initiation of corporate insolvency resolution process against any financial service provider. We are in agreement with the arguments presented by the respondent CD and consider it as a financial service provider and a Non-Banking Financial Institution being registered as such by the RBI and that for this reason it falls outside the purview of section 7 of the Code of 2016. Thus even though it owes a debt to the petitioner FC the prayer of the FC for initiation of CIRP in respect of M/s. Purbanchal Trade and Industries Ltd. fails. Petition dismissed.

Summary

Issues:
1. Maintainability of the petition under Section 7 of the Insolvency & Bankruptcy Code, 2016 against a Non-Banking Financial Company (NBFC).

Analysis:
The petition was filed by a Financial Creditor (FC) under Section 7 of the Insolvency & Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor (CD) for defaulting on a financial debt. The CD, being an NBFC, argued that the petition was not maintainable as per the provisions of the Code. Reference was made to previous cases where it was held that an NBFC could not be brought within the ambit of Section 7 of the Code. The CD contended that since it was registered as an NBFC by the Reserve Bank of India (RBI), the IBC provisions did not apply to it.

The petitioner argued that the CD's exclusion as an NBFC should not be accepted, as the CD did not fulfill the obligations of an NBFC and its main objects were not aligned with those of an NBFC. The petitioner cited a case to emphasize that the RBI registration alone could not be relied upon without considering the attached conditions. The Tribunal examined the provisions of the Code and noted that a financial service provider, including an NBFC, was excluded from the definition of a corporate person and CD. Therefore, the provisions of the IBC did not apply to financial service providers, and no creditor could initiate insolvency resolution against them.

The Tribunal referred to previous judgments where it was held that the IBC did not apply to financial service providers. It emphasized that the IBC is a self-contained code for reorganization and insolvency resolution of corporate persons, excluding financial service providers. The CD's Memorandum and Articles of Association indicated financial activities akin to NBFCs, and it was registered by the RBI as an NBFI. The Tribunal declined to delve into verifying the CD's fulfillment of NBFI obligations, stating it was beyond the NCLT's purview in an application under Section 7 of the Code.

Ultimately, the Tribunal agreed with the CD's argument that it was a financial service provider and an NBFI registered by the RBI, falling outside the purview of Section 7 of the Code. Consequently, the petition for CIRP against the CD was dismissed, citing the implications of such action on a going concern and the regulatory authority's role in determining compliance with financial regulations.