2023 (9) TMI 527 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI

Initiation of CIRP - Dues towards stock exchange - Financial debts / Financial Service Provider - Validity of order of NCLT admitting the application of the Ex-Directors of the Corporate Debtors, for default in repayment of Loan - Prayer for clarification that a Trading Member of the Applicant registered as a Stock Broker with the SEBI being a Financial Service Provider is not a ‘corporate person’ and is not amenable to proceedings under the Code - Corporate Debtor is a Stock Broker, registered with the SEBI and is a Trading Member of the NSE - corporate person or not - HELD THAT:- The SEBI is Financial Sector Regulator. The Stock Brokers and Sub- Brokers under the SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992 are required to be compulsorily registered under Section 3. Regulation contains details of obligation and responsibilities of the Stock Brokers. Schedule-II Regulation, 1992 provides for ‘Code of Conduct for Stock Brokers’. The Stock Brokers under heading “B” – Duty to the Investor includes – Investment Advice in publicly accessible media. The Stock Brokers, who are covered by the Regulation 1992 are subject to various obligation and duties towards Investors and from the nature of activities as contained in the Memorandum of Association of both the Corporate Debtors, they clearly fall within the definition of ‘Financial Service Provider’.

It is noticed that SEBI and NSE have a mechanism for disposal of complaints by Investor - The NSE has also brought on record the Circulars issued by Securities and Exchange Board of India dated November 6, 2020 on the subject Investor Grievance Redressal Mechanism, which indicates that SEBI has its own mechanism for redressal of grievances, which arose regarding service-related complaint. In fact, a complaint was filed by Vipul H Raja against the Corporate Debtor as noted above for the very same amount, which was considered and rejected by complaint mechanism. The Financial Creditor – Respondent No.1 without being deterred by the said rejection has filed Section 7 Application, which was wholly incompatible.

Section 5(8)(g) has to be read harmoniously with Section 7 and Section 5(7) and 5(8). Section 5(8)(g) cannot be read in any manner that financial service providers are also covered under Section 5(8)(g). The Adjudicating Authority misconstrued the provisions of the Code and on finding that debt is payable by the Corporate Debtor, admitted Section 7 Application. The order of the Adjudicating Authority against the Corporate Debtor namely - Simandhar Broking Ltd., who being the Financial Service Provider was an entity against whom no proceedings under Section 7 could have been initiated. Initiation of Section 7 proceedings was itself nonmaintainable and Adjudicating Authority ought to have rejected the Application.

Both the Corporate Debtors, i.e. Simandhar Broking Ltd. and M/s. Astitva Capital Market Private Limited being registered Broker with SEBI and Trading Member of the NSE are providing services, which are ‘financial services’ within the meaning of definition of Section 3(16) of the Code and by virtue of Section 3(7) read with Section 3(8) and Section 227 of the Code, Section 7 Application filed by Corporate Debtors were not maintainable. The orders passed by Adjudicating Authority in both the Appeal(s) deserve to be set-aside.

Appeal allowed.