Tribunal Rejects CIRP Petition Against NBFC under IBC

The Tribunal dismissed the petition seeking initiation of Corporate Insolvency Resolution Process (CIRP) against a Non-Banking Financial Company (NBFC) under Section 7 of the Insolvency & Bankruptcy Code, 2016. It held that the NBFC, registered by the Reserve Bank of India (RBI), fell outside the purview of the Code as a financial service provider. Emphasizing the exclusion of financial service providers from the IBC, the Tribunal declined to entertain the petition, citing regulatory authority's role in overseeing compliance with financial regulations and the impact on the NBFC's operations as a going concern.

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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.

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