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TMI Blog2023 (9) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhav Goel, Advocates for RP/R-3 For the Appellant : Mr. Arun Kathpalia, Sr. Advocate, Mr. Aubert Sebastian, Mr. Ribhu Garg, d Mr. Vedant Kumar, Mr. Aditya Dhupar, Advocates For the Respondent : Mr. Krishan 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red 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. IA No.2204 of 2021 filed by the 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 - Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led within three days. If the Appellant provides the e-mail address of Respondents, let Notices be also issued through e-mail. Reply Affidavit by the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992 and submit that the services provided by the Stock Brokers are Financial 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings, but on account of initiation of CIRP, the proceedings have been got deferred. The RP has also taken possession of the asset. 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, transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancing and advancing, with or without security to any person whether individual, firms, H.U.F., body corporate 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 ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orisation issued or registration 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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 appropriate financial sector regulators to notify FSPs or categories of FSPs for the purpose of their insolvency and liquidation proceedings which may be conducted under the IBC. The definition of an FSP under the IBC means a person engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 Depositories Sep 15, 2019 2 4 Clearing Corporations Sep 15, 2019 7 5 Registered Alternative Investment Fund Sep 15, 2019 608 6 Registered Stockbrokers in equity segment Sep 15, 2019 3,357 7 Registered Stockbrokers in Equity Derivative Segment Sep 15, 2019 2,797 8 Registered Stockbrokers in Currency Derivative Segment Sep 15, 2019 2,723 9 Registered Stockbrokers in interest Rate Derivative Segment Sep 15, 2019 1,351 10 Registered Stockbrokers in Interest Rate Derivati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Sub-Brokers) Regulations, 1992. The Stock Brokers are required to be registered with SEBI. The 'Financial Service Provider' and 'Financial Sector Regulator' are defined in Sections 3(17) and 3(18), which are to the following effect: "3(17) "financial service provider" means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator;" (18) "financial sector regulator" means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as may be notified by the Central Government;" 33. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been carved out while enacting the Code that the 'financial service providers' have been kept outside the purview of the Code. Being a consolidating legislation only those acts are permitted which are mentioned in the Code and it cannot be made applicable to 'financial service providers' including 'non-banking financial institutions' and MFI's banks, which have been kept outside the purview of the Code. 11. The Adjudicating Authority has failed to notice the aforesaid provisions and passed the impugned order dated 8th January, 2018 initiating 'insolvency corporate resolution process' against 'M/s. Mayfair Capital Pvt. Ltd.', a 'financial service provider' (non-banking financial company)." 36. This Tribunal in Company Appeal (AT) (Insolvency) No.26 of 2019 - Housing Development Finance Corporation Ltd. vs. RHC Holding Private Ltd. has again noticed the relevant provisions of the Code and held that non-banking financial institution, carrying on business of financial institution is a financial service provider and do not come within the meaning of Corporate Person/ Corporate Debtor. 37. The NSE has also brought on record the Circulars issued by Securities and Exchange Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch transaction shall be taken into account;" 40. 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. 41. Now, coming to the order dated 25.11.2021, it is seen that the Applicant was none-less than the Ex-Director of the Corporate Debtor, who filed the Application claiming to have advanced the loan to the Corporate Debtor. The learned Counsel for the NSE has brought 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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