Application for Insolvency of NBFC Corporate Debtor Dismissed

The Tribunal dismissed the application to initiate Corporate Insolvency Resolution Process (CIRP) against the Non-Banking Financial Company (NBFC) Corporate Debtor. The dismissal was based on the finding that NBFCs are excluded from the definition of "Corporate Person" under the Insolvency and Bankruptcy Code. Additionally, the Tribunal considered the presence of prior disputes and the Operational Creditor's shareholding in the Corporate Debtor as factors contributing to the application's non-maintainability.

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Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Non-payment of salary and gratuity by the Corporate Debtor.
3. Dispute regarding the amount claimed by the Operational Creditor.
4. Maintainability of the application due to the Corporate Debtor being a Non-Banking Financial Company (NBFC).
5. Existence of prior disputes and their impact on the CIRP application.
6. The Operational Creditor’s shareholding in the Corporate Debtor and its effect on the application.

Detailed Analysis:

1. Initiation of CIRP under Section 9 of IBC, 2016:
The application was filed by the Operational Creditor seeking to initiate CIRP against the Corporate Debtor for an alleged default of Rs. 16,44,231/-. The Operational Creditor claimed non-payment for services provided from 01.04.2007 to 31.07.2019, including unpaid salary and gratuity. The Date of Default was stated as 03.09.2019.

2. Non-payment of Salary and Gratuity:
The Operational Creditor alleged that the Corporate Debtor did not pay her salary of Rs. 11,25,000/- for the period from 01.05.2018 to 31.07.2019 and gratuity amounting to Rs. 5,19,231/-. A statutory Demand Notice under Section 8 of IBC, 2016 was issued on 24.09.2019, demanding Rs. 20,76,932/-, which was later reduced to Rs. 16,44,231/-.

3. Dispute Regarding the Amount Claimed:
The Corporate Debtor disputed the amount claimed by the Operational Creditor, stating that the claim was based on wrong facts and misrepresentation. The Corporate Debtor also highlighted discrepancies in the amounts mentioned in the Demand Notice and the application. The Operational Creditor adjusted her claim based on the Corporate Debtor’s assertion regarding her employment period.

4. Maintainability of the Application due to the Corporate Debtor being an NBFC:
The Corporate Debtor argued that as an NBFC, it does not fall within the definition of a "Corporate Person" under Section 3(7) of IBC. The Tribunal noted that financial service providers, including NBFCs, are excluded from the definition of "Corporate Person" and hence, CIRP cannot be initiated against them.

5. Existence of Prior Disputes:
The Corporate Debtor raised the issue of pre-existing disputes, including a pending Company Petition alleging mismanagement and oppression of minority shareholders. The Corporate Debtor also mentioned ongoing criminal cases against the Operational Creditor and her husband, which impacted the claim for gratuity.

6. The Operational Creditor’s Shareholding in the Corporate Debtor:
The Corporate Debtor pointed out that the Operational Creditor holds 2.97% of the total shareholding in the Corporate Debtor, and along with her husband, holds a total of 10.65%. The Tribunal referred to the NCLAT judgment in Lalit Mishra v. Sharon Bio Medicine, which held that shareholders are not creditors and cannot initiate CIRP.

Judgment:
The Tribunal dismissed the application, holding that the Corporate Debtor, being an NBFC, is excluded from the definition of "Corporate Person" under IBC. The Tribunal also noted that the existence of prior disputes and the Operational Creditor’s shareholding in the Corporate Debtor rendered the application not maintainable.

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