TMI Blog2023 (9) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 grievan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Kumar, Mr. Shivam Bedi, Advocates for R-1. Mr. Gaurav Srivastava, Ms. Namrata Parashar, Advocates for R-2. Mr. Akshit Sachdeva a Mr. Varun Gupta, Advocates for Intervenor in I.A. No. 3409, 3410 of 2023 ORDER ASHOK BHUSHAN, J. These two Appeal(s) raising common questions of law being heard together and are being decided by this common order. Company Appeal (AT) (Insolvency) No. 379 of 2021 2. This Appeal has been filed against the order dated 06.04.2021 passed by National Company Law Tribunal ( NCLT ), Ahmedabad Bench, Ahmedabad in CP (IB) No.510/7/NCLT/ AHM/2019, by which order the Application filed by Respondent No.1 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code ) has been admitted against the Corporate Debtor M/s Simandhar Broking Limited. The Appellant, who is a suspended Director of the Corporate Debtor, aggrieved by the order has come up in this Appeal. 3. Brief facts of the case are: (i) The Corporate Debtor Simandhar Broking Ltd. Is a Broking Company involved in the business of Stock Broking and is a Registered Stock Broker with Securities and Exchange Board of India ( SEBI ) and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he National Stock Exchange was allowed by order dated 03.08.2022. 5. In this Appeal, reply has been filed by Respondent No.1 as well as by IRP, to which rejoinder has also been filed by the Appellant. Both the parties have filed their written submissions. Company Appeal (AT) (Insolvency) No. 749 of 2022 6. This Appeal has been filed by National Stock Exchange of India Limited challenging the order dated 25.11.2021 passed by NCLT, New Delhi in CP(IB) No.397 of 2021, by which order, the Application under Section 7 filed by Respondent No.1 - Hemant Kumar Gupta, erstwhile Director of the Corporate Debtor - M/s. Astitva Capital Market Pvt. Ltd., has been admitted initiating Corporate Insolvency Resolution Process ( CIRP ) against the Corporate Debtor - M/s. Astitva Capital Market Pvt. Ltd. The Appellant, who was not the party to the proceedings, has filed this Appeal, claiming to be an aggrieved person by the order dated 25.11.2021. 7. The brief facts giving rise to the Appeal are: (i) The Appellant - National Stock Exchange of India Ltd. ( NSE ) by an email dated 15.03.2021 sought certain information/ data from Astitva Capital for the purpose of inspection of its bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondents be filed within three weeks and Rejoinder, if any, may be filed by Appellant within two weeks thereafter. List this Appeal on 22nd August, 2022. In the meantime, no further steps shall be taken in pursuance to the order dated 25.11. 2021. 9. In Company Appeal (AT) (Insolvency) No. 749 of 2022 an Application for Intervention being IA No.3409 of 2023 has been filed on behalf of Smt. Prem Kumari praying intervention in the proceeding and seeking a direction to Interim Resolution Professional ( IRP ) to vacate intervenor/ applicant s premises in his occupation, i.e., property bearing Flat No.307, 3rd Floor, New Delhi House, 27, Barakhamba Road, New Delhi-110001. 10. In Company Appeal (AT) (Insolvency) No. 749 of 2022, the Respondents have appeared and also filed their replies, to which rejoinder has also been filed. Written submissions have also been filed by the parties 11. We have heard Shri Hemant Sethi, learned Counsel for the Appellant in Company Appeal (AT) (Insolvency) No. 379 of 2021, Shri Arun Kathpalia, learned Senior Counsel appearing for the Appellant in Company Appeal (AT) (Insolvency) No. 749 of 2022. Shri Rahul Chitnis has appeared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Services. The learned Counsel for the Appellant has also referred to Report of the Sub-Committee of the Insolvency Law Committee for Notification of Financial Service Provider under Section 227 of the Code dated October 04, 2019. 13. Shri Rahul Chitnis, learned Counsel appearing for Respondent No.1 submits that Application filed under Section 7 was very well maintainable. It is submitted that Section 3(7) read with Section 3(16)(e) of the Code seeks to create a narrow exception for entities who are engaged in rendering or agreeing to render advice or soliciting for the financial products or services., which cannot be extended to entities, which are directly engaging in buying or selling financial products or services. The Corporate Debtor Simandhar Broking Ltd. was directly buying and selling securities on behalf of Respondent No.1 and it is not covered within the definition of Financial Service Provider . The Adjudicating Authority has considered all aspects of the matter and has rightly come to the conclusion that Section 7 Application was maintainable. It is submitted that IGRP is a remedy, which is available to the Investor. The role of the IGRP is limited in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et. The RP need to be directed to vacate the Applicant premises. 16. We have heard learned Counsel for the parties and perused the records. 17. We need to first notice the nature of functions, which are performed by the Corporate Debtor in these two Appeal(s). The Corporate Debtor in Company Appeal (AT) (Insolvency) No. 379 of 2021, i.e., Simandhar Broking Ltd. is an entity, which is registered with SEBI vide registration dated 30.06.2010. Respondent No.1 has himself filed additional document regarding status of Simandhar Broking Ltd. as per National Stock Exchange of India Limited. The document further indicates that NSE has withdrawn the trading right of Simandhar Broking Ltd. by order dated 18.09.2021. 18. The Memorandum of Association of Simandhar Broking Ltd. is on record, which is filed along with the written submissions of NSE Intervenor. Clause 3 of Memorandum of Association A deals with main objects of the Company, which are as follows: To Carry on the business of purchasing, acquiring, holding, trading, buying, selling, broking, transferring, disposing of or dealing in any shares, stocks, debentures, stocks, bonds, obligations, units, securities includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate financing on hire, purchase operation and on secured/ unsecured at mutual terms and conditions assisting or subsidizing or financing the sale/ Purchase of any goods or commodities financing or deferred payments all and every types of commodities, movables or immovable properties, irrespective of new and/or old viz. land, building, properties, all types of automobile, motor vehicle, plant and machinery, consumers products electronic goods, ships and air crafts. 20. Section 3, sub-section (37) of the Code provides that words and expression used but not defined in this Code but defined in its own Act etc. including the Securities Contact (Regulation) Act, 1956 and the Securities Exchange Board of India Act, 1992 shall have the meanings respectively assigned to them in those Acts. The security has been defined in Securities Contact (Regulation) Act, 1956 in Section 2(h), which is as follows: 2(h) securities include (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion granted by a financial sector regulator; 23. The Application under Section 7 of the Code can be filed against a Corporate Debtor. The Corporate Debtor is defined in Section 3, subsection (8), which is to the following effect: 3(8) corporate debtor means a corporate person who owes a debt to any person; 24. Expression Corporate Debtor means a corporate person , which is defined in Section 3, sub-section (7), which is to the following effect: 3(7) corporate person means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; 25. The last words in the definition of Section 3(7) are but shall not include any financial service provider . Thus, any Financial Service Provider are expressly excluded from the definition of corporate person , which clearly mean that they are not the Corporate Debtor against whom Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies (which include housing finance companies) with asset size of Rs. 500 crore or more, as per last audited balance sheet Reserve Bank of India To be notified separately 28. The learned Counsel for the Appellant NSE has also referred to the Report of Sub-Committee of the Insolvency Law Committee. The said Committee was constituted for insolvency of Financial Service Provider under Section 227, by order dated 16th August, 2019 of the Central Government, Govt. of India, Ministry of Corporate Affairs. In the Report, the Sub-Committee noted the rationale of different procedure for Financial Service Provider. In the Introduction of the Report, following has been stated: The Insolvency and Bankruptcy Code, 2016 (IBC / Code) provides a consolidated framework for the reorganisation, insolvency resolution and liquidation of corporate persons, limited liability partnerships, partnership firms and individuals n a time-bound manner. The definition of corporate person under the IBC does not include any financial service provider (FSP). However, section 227 of the IBC empowers the Central Government in consultation with the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bankruptcy Code, as the rationale for covering under a specialised resolution regime does not apply to such firms 29. It is also relevant to notice that Sub-Committee Report contains - Part-I Introduction, Part-II Key Issues and Conclusions in Relation to Formulating a Framework for the Resolution of FSPs under the IBC and there were seven annexures along with Report. Annexure-6 of the Report contains a heading An overview of the entities engaged in the business of providing financial services in India . Under the heading B , i.e., Securities and Exchange Board of India (SEBI) details of Category of Financial Services Provider (FSP) are mentioned. It is useful to extract heading B of Annexure-6, which is as follows: B. Securities and Exchange Board of India (SEBI) Sl. No. Category of Financial Service Provider (FSP) As on Total 1 Stock Exchanges Sep 15, 2019 6 2 Commodity Derivative Exchanges Sep 15, 2019 3 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 FPIs/ Deemed FPIs (Erstwhile FIIs/QFIs) Sep 15, 2019 9,850 22 Registered Foreign Venture Capital Investors Sep 15, 2019 251 23 Investment Adviser Sep 15, 2019 1,239 24 Registered Infrastructure Investment Trusts Sep 15, 2019 10 25 KYC (Know Your Client) Registration Agency Apr 17, 2017 5 26 Merchant Bankers Sep 15, 2019 214 27 Registered Mutual Funds Sep 15, 2019 45 28 Registered Portfolio Managers Sep 15, 2019 352 29 Registrars to an issue and share Transfer Agents Sep 15, 2019 79 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 34. We may also notice that SEBI and NSE have a mechanism for disposal of complaints by Investor. As noted above in Company Appeal (AT) (Insolvency) No. 379 of 2021, the Financial Creditor Respondent No.1 filed a complaint on 11.07.2019 against the Corporate Debtor, which complaint was examined and rejected on 16.08.2019, holding that no claim is due towards Respondent No.1 by the Corporate Debtor. The complaint filed by Respondent No.1 was for the same amount, i.e., Rs.1,01,74,985/- for which debt Section 7 Application was filed. NSE also has By-laws for dealing with the complaints ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of Corporate Person/ Corporate Debtor. 37. 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. 38. Now we come to the impugned orders passed in both the Appeal(s). In order dated 06.04.2021, the Adjudicating Authority has observed that if a company engaged in the business of Stock Broking or derivative transactions was to be considered as a Financial Service Provider and was to be excluded from the CIRP proceedings, then provisions of Section 5(8)(g) would have not been in existence. In paragraph 31 of the judgment, following observations have been made: 31. It is to be mentioned herein that, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht on record the Show Cause Notice dated 07.07.2021, which was issued to Corporate Debtor through Hemant Kumar Gupta, the Applicant (Respondent No.1 herein). The proceedings initiated by Respondent No.1 were clearly intended to stall the proceedings initiated by NSE by taking the benefit of moratorium and was not initiated with any object of insolvency resolution of Corporate Debtor. The Adjudicating Authority in the impugned order dated 25.11.2021 has not noticed the relevant provisions pertaining to Financial Service Provider. The Corporate Debtor, who was Stock Broker was not keen to raise any objection that Application under Section 7 is not maintainable against the Financial Service Provider. The intent of the proceeding was to save the Applicant from proceedings initiated by NSE. Hence, the Corporate Debtor neither shown to have genuinely contested the proceedings, nor Adjudicating Authority has adverted to the relevant provisions and facts of the case. The order dated 25.11.2021, admitting Section 7 Application is, thus, clearly untenable. The submission of Respondent that NSE has no locus to file Appeal against the order dated 25.11.2021, suffice it to say that NSE being Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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