Tribunal rejects CIRP application against AKJ Fincap Ltd for non-compliance

The Tribunal rejected the Financial Creditor's application for Corporate Insolvency Resolution Process (CIRP) against AKJ Fincap Limited, a Corporate Guarantor, under Section 7 of the Insolvency and Bankruptcy Code, 2016. The rejection was based on non-compliance with specific rules for Financial Service Providers and the asset size requirement, as the Corporate Guarantor's assets fell below the stipulated threshold of Rs. 500 crores for eligibility. The order emphasized that the rejection does not preclude the Financial Creditor from seeking alternative recourse through other appropriate channels.

---

---

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Jurisdiction and eligibility of the Corporate Guarantor as a Financial Service Provider.
3. Procedural compliance with the Insolvency and Bankruptcy Code and related rules.
4. Ex-parte order and its setting aside.
5. Application of specific rules for Financial Service Providers.

Detailed Analysis:

1. Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The petition was filed by the Bank of India (Financial Creditor) under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of CIRP against AKJ Fincap Limited (Corporate Guarantor) for the defaulted amount of Rs. 11,34,30,136.00. The Financial Creditor provided detailed documentation, including loan agreements, hypothecation agreements, and mortgage deeds, to substantiate the debt and default. The Corporate Guarantor had provided guarantees and created equitable mortgages to secure the loan.

2. Jurisdiction and Eligibility of the Corporate Guarantor as a Financial Service Provider:
The Corporate Guarantor, AKJ Fincap Limited, is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI). The Financial Creditor admitted that the total assets of AKJ Fincap Limited were Rs. 15.63 crores, which is below the stipulated limit of Rs. 500 crores for NBFCs to be eligible for CIRP under the special provisions for Financial Service Providers. The Tribunal emphasized that only the appropriate regulator (RBI) can initiate CIRP against Financial Service Providers with assets of Rs. 500 crores or more.

3. Procedural Compliance with the Insolvency and Bankruptcy Code and Related Rules:
The Tribunal noted that the application did not comply with the specific rules for Financial Service Providers as prescribed under the Insolvency and Bankruptcy Code, 2016, and the related rules notified by the Central Government. The Central Government's notification dated 18.11.2019 specifies that only NBFCs with assets of Rs. 500 crores or more are subject to CIRP, and such proceedings must be initiated by the appropriate regulator, not by individual creditors.

4. Ex-parte Order and its Setting Aside:
An ex-parte order was initially passed by the Tribunal on 18.03.2020 due to the absence of the Corporate Guarantor. The Corporate Guarantor later filed an application to set aside the ex-parte order, citing insufficient notice and the impact of COVID-19 restrictions. The NCLAT, upon appeal, set aside the ex-parte order, emphasizing the principles of natural justice and the need to provide the Corporate Guarantor an opportunity to file a reply and participate in the proceedings.

5. Application of Specific Rules for Financial Service Providers:
The Tribunal highlighted that the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019, apply to Financial Service Providers with assets of Rs. 500 crores or more. The Financial Creditor's application did not follow these rules, as the Corporate Guarantor's assets were below the required threshold, and the appropriate regulator (RBI) did not initiate the proceedings.

Order:
The Tribunal rejected the application filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016, due to non-compliance with the specific rules for Financial Service Providers and the asset size requirement. The order clarified that the rejection does not affect the Financial Creditor's right to seek recourse before other forums if eligible.

---