2026 (2) TMI 190 - AT - IBC

Maintainability of Section 7 petition against former NBFC after registration cancellation; admission upheld, appeal dismissed

An insolvency petition under Section 7 was held maintainable because the corporate debtor ceased to be a financial service provider upon cancellation of ... Maintainability of Section 7 application - exclusion of 'financial service provider' from the definition of 'corporate person' - financial service provider - effect of cancellation of registration of NBFC on exclusion u/s 3(7) - admission of Section 7 application upon finding of debt and default - HELD THAT:- There can be no dispute to the proposition as submitted by the Counsel for the Appellant that the NBFC is not a corporate person within the meaning of Section 3(7) hence it is excluded from Section 3(7) of the IBC, 2016. Section 7 of the IBC provides for initiation of the corporate insolvency resolution process by a Financial Creditor. Section 6 provides who can initiate proceedings against any corporate person. From the cancellation the registration of the Corporate Debtor as NBFC by the RBI w.e.f. 18.09.2018, the Corporate Debtor no longer continues as a Financial Service Provider. When Corporate Debtor does not continue as a Financial Service Provider, the exclusion as provided under Section 3(7) shall not be applicable and it shall not be open to the Appellant to contend that the Section 7 application was not maintainable. The present is not a case where the Corporate Debtor was continuing as Financial Service Provider on the date when application under Section 7 was filed. The certificate cancelling registration has been brought on record by the Respondent in this Appeal therefore is no longer any issue which require determination, as to the Corporate Debtor being a Financial Service Provider. We, thus, are of the view that the above Judgment in no manner help the Appellant in the present case. The Adjudicating Authority after having found the debt and default has rightly admitted Section 7 application. We do not find any error in the order admitting Section 7 application. The Appeal is dismissed. Issues: Whether the Section 7 application against the Corporate Debtor was maintainable when the Corporate Debtor had its NBFC registration cancelled prior to filing of the Section 7 petition.Analysis: The Court examined the statutory exclusion of 'financial service provider' from the definition of 'corporate person' under Section 3(7) of the IBC, 2016 and the definition of 'financial service provider' under Section 3(17). The Tribunal reviewed the record, including the RBI letter showing cancellation of the Corporate Debtor's NBFC registration effective 18.09.2018, and compared the registration status with the date of filing of the Section 7 application (21.12.2019). The Court distinguished the present facts from the precedent relied upon by the Appellant, noting that in the cited case the question of the debtor's status as an NBFC had not been adjudicated below and was remanded for evidence; whereas here the cancellation certificate was on record indicating the Corporate Debtor was no longer a financial service provider when the Section 7 petition was filed. The Tribunal therefore concluded that the statutory exclusion did not apply on the date of filing.Conclusion: The Section 7 application was maintainable; the Adjudicating Authority correctly admitted the Section 7 petition. The appeal is dismissed and interim order vacated; the period of the interim order shall be excluded from the CIRP period.