2019 (7) TMI 638 - AT - Insolvency and Bankruptcy

Application under Insolvency and Bankruptcy Code against financial service provider dismissed

The Tribunal concluded that the application under Section 7 of the Insolvency and Bankruptcy Code was not maintainable against the respondent, a financial ... Maintainability of application - Interpretation of statute - Scope of I&B Code - non-banking financial institution rendering ‘financial service’ - whether out of the purview of the I&B Code or not? - HELD THAT:- The definition of ‘financial services’ as defined in Section 3(16) of I&B Code is not limited to the 9 activities as shown at Clause (a) to (i) of Section 3(16). The Clauses (a) to (i) are inclusive which means there are other services means there are other services which come within the meaning of “financial services” - The Registration of Certificate issue by RBI shows that it has granted certificate to commence/carry on business of “non-banking financial services”. However, the Respondent has not been allowed to accept the public deposit and such certificate is condition to other conditions as provided in the back of the Certificate. Chapter IIIB of The Reserve Bank of India Act, 1934 relates to “Provisions Relating to Non-Banking Institutions Receiving Deposits and Financial Institutions”. It is not applicable to State Bank or a banking company as defined in Section 5 of the Banking Regulation Act, 1949 or a corresponding new bank as defined in clause (da) of Section 5 of the Act or Regional Rural Bank or a cooperative bank or a primary agricultural credit society or a primary credit society. Therefore, it is clear that the Respondent, a non-banking financial institution is carrying on business of financial institution and thereby it being financial service provider do not come within the meaning of Corporate Person/Corporate Debtor. So far as the allegation that the Respondent, Non-Banking Finance Company, is taking deposits from others in violation of conditions imposed by the Reserve Bank of India, such issue cannot be decided by the Adjudicating Authority while considering an Application under Section 7 or 9 of the I&B Code. Only on such ground the Adjudicating Authority cannot admit or reject an application under Section 7 or 9 of the I&B Code. The application under Section 7 of I&B Code is not maintainable - Appeal dismissed. Issues Involved:1. Whether the respondent company is a financial service provider and thus excluded from the purview of the Insolvency and Bankruptcy Code (I&B Code).2. Whether the application under Section 7 of the I&B Code is maintainable against the respondent company.Issue-wise Detailed Analysis:1. Financial Service Provider Exclusion:The appellant, Housing Development Finance Corporation Ltd (HDFC Ltd), a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) against M/s RHC Holding Pvt Ltd (Corporate Debtor). The Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, rejected this application on the grounds that the respondent company is a non-banking financial institution rendering 'financial service' and is thus out of the purview of the I&B Code.The appellant argued that the respondent is not a 'financial service provider' as defined under Section 3(17) of the I&B Code, which should be limited to entities specifically engaged in providing financial services listed in Section 3(16). The appellant's counsel pointed out that the respondent admitted to being a holding company investing in shares, bonds, debentures, debts or loans in group companies, which does not constitute providing financial services.The Adjudicating Authority, however, referred to the Certificate of Registration issued by the Reserve Bank of India (RBI), which registered the respondent as a 'non-banking financial company' (NBFC) but not allowed to accept public deposits. The definition of 'financial service' under Section 3(16) includes various activities such as safeguarding and administering assets, effecting contracts of insurance, and managing assets, which the respondent is engaged in, thereby classifying it as a 'financial service provider'.2. Maintainability of Application Under Section 7:The appellant contended that the respondent's activities do not fall within the nine financial services listed under Section 3(16) of the I&B Code. However, the Tribunal clarified that the definition of 'financial services' is inclusive and not limited to the activities listed in clauses (a) to (i) of Section 3(16).The Tribunal further explained that the respondent, as an NBFC, is engaged in the business of financial institutions as defined under Section 45-I(c) of the RBI Act, 1934, which includes financing activities, acquisition of shares, bonds, debentures, etc. Therefore, the respondent qualifies as a 'financial service provider' and does not come within the meaning of 'Corporate Person/Corporate Debtor' under Section 3(7) of the I&B Code.The Tribunal also noted that any violations of conditions imposed by the RBI by the respondent cannot be adjudicated by the Authority while considering an application under Section 7 or 9 of the I&B Code. Such issues should be brought to the notice of the RBI.Conclusion:The Tribunal concluded that the application under Section 7 of the I&B Code is not maintainable against the respondent, a financial service provider. The Adjudicating Authority rightly rejected the application, and the appeal was dismissed with no costs.