TaxTMI 
TaxTMI 
2023 (9) TMI 527
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....for R-1. Mr. Saurabh Kalia and Mr. Madhav Goel, Advocates for RP/R-3 For the Appellant : Mr. Arun Kathpalia, Sr. Advocate, Mr. Aubert Sebastian, Mr. Ribhu Garg, d Mr. Vedant Kumar, Mr. Aditya Dhupar, Advocates For the Respondent : Mr. Krishan Kumar, Mr. Shivam Bedi, Advocates for R-1. Mr. Gaurav Srivastava, Ms. Namrata Parashar, Advocates for R-2. Mr. Akshit Sachdeva a & Mr. Varun Gupta, Advocates for Intervenor in I.A. No. 3409, 3410 of 2023 ORDER ASHOK BHUSHAN, J. These two Appeal(s) raising common questions of law being heard together and are being decided by this common order. Company Appeal (AT) (Insolvency) No. 379 of 2021 2. This Appeal has been filed against the order dated 06.04.2021 passed by National Company Law Tribunal ("NCLT"), Ahmedabad Bench, Ahmedabad in CP (IB) No.510/7/NCLT/ AHM/2019, by which order the Application filed by Respondent No.1 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code") has been admitted against the Corporate Debtor - M/s Simandhar Broking Limited. The Appellant, who is a suspended Director of the Corporate Debtor, aggrieved by the order has come up in this Appeal. 3. Bri....
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....lication has prayed for clarification that a Trading Member of the Applicant registered as a Stock Broker with the SEBI being a Financial Service Provider is not a 'corporate person' and is not amenable to proceedings under the Code. IA No.2204 of 2021 filed by the National Stock Exchange was allowed by order dated 03.08.2022. 5. In this Appeal, reply has been filed by Respondent No.1 as well as by IRP, to which rejoinder has also been filed by the Appellant. Both the parties have filed their written submissions. Company Appeal (AT) (Insolvency) No. 749 of 2022 6. This Appeal has been filed by National Stock Exchange of India Limited challenging the order dated 25.11.2021 passed by NCLT, New Delhi in CP(IB) No.397 of 2021, by which order, the Application under Section 7 filed by Respondent No.1 - Hemant Kumar Gupta, erstwhile Director of the Corporate Debtor - M/s. Astitva Capital Market Pvt. Ltd., has been admitted initiating Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor - M/s. Astitva Capital Market Pvt. Ltd. The Appellant, who was not the party to the proceedings, has filed this Appeal, claiming to be an aggrieved person by the order date....
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....of any resolution. Issue Notices to the Respondent Nos. 1 & 2 by Speed Post. Requisites along with process fee, if not filed, be filed within three days. If the Appellant provides the e-mail address of Respondents, let Notices be also issued through e-mail. Reply Affidavit by the Respondents be filed within three weeks and Rejoinder, if any, may be filed by Appellant within two weeks thereafter. List this Appeal on 22nd August, 2022. In the meantime, no further steps shall be taken in pursuance to the order dated 25.11. 2021." 9. In Company Appeal (AT) (Insolvency) No. 749 of 2022 an Application for Intervention being IA No.3409 of 2023 has been filed on behalf of Smt. Prem Kumari praying intervention in the proceeding and seeking a direction to Interim Resolution Professional ("IRP") to vacate intervenor/ applicant's premises in his occupation, i.e., property bearing Flat No.307, 3rd Floor, New Delhi House, 27, Barakhamba Road, New Delhi-110001. 10. In Company Appeal (AT) (Insolvency) No. 749 of 2022, the Respondents have appeared and also filed their replies, to which rejoinder has also been filed. Written submissions have also been filed....
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.... as well as Astitva Capital Market Private Limited, which indicate that they are Financial Service Providers. The learned Counsel for the Appellant(s) has also referred to the SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992 and submit that the services provided by the Stock Brokers are Financial Services. The learned Counsel for the Appellant has also referred to Report of the Sub-Committee of the Insolvency Law Committee for Notification of Financial Service Provider under Section 227 of the Code dated October 04, 2019. 13. Shri Rahul Chitnis, learned Counsel appearing for Respondent No.1 submits that Application filed under Section 7 was very well maintainable. It is submitted that Section 3(7) read with Section 3(16)(e) of the Code seeks to create a narrow exception for entities who are engaged in rendering or agreeing to render advice or soliciting for the financial products or services., which cannot be extended to entities, which are directly engaging in buying or selling financial products or services. The Corporate Debtor Simandhar Broking Ltd. was directly buying and selling securities on behalf of Respondent No.1 and it is not covered within the definition of 'F....
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.... Applicant has already filed a suit for possession and for permanent injunction against Astitva Capital Market Private Limited. The Commercial Court is ceased of the proceedings, but on account of initiation of CIRP, the proceedings have been got deferred. The RP has also taken possession of the asset. The RP need to be directed to vacate the Applicant premises. 16. We have heard learned Counsel for the parties and perused the records. 17. We need to first notice the nature of functions, which are performed by the Corporate Debtor in these two Appeal(s). The Corporate Debtor in Company Appeal (AT) (Insolvency) No. 379 of 2021, i.e., Simandhar Broking Ltd. is an entity, which is registered with SEBI vide registration dated 30.06.2010. Respondent No.1 has himself filed additional document regarding status of Simandhar Broking Ltd. as per National Stock Exchange of India Limited. The document further indicates that NSE has withdrawn the trading right of Simandhar Broking Ltd. by order dated 18.09.2021. 18. The Memorandum of Association of Simandhar Broking Ltd. is on record, which is filed along with the written submissions of NSE - Intervenor. Clause 3 of Memorandum of Assoc....
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....rms and conditions as the company may think fit but not amounting to banking business as defined under the Banking Regulation Act, 1949. 2. To carry on and undertake the business of financing, loan advancing and advancing, with or without security to any person whether individual, firms, H.U.F., body corporate financing on hire, purchase operation and on secured/ unsecured at mutual terms and conditions assisting or subsidizing or financing the sale/ Purchase of any goods or commodities financing or deferred payments all and every types of commodities, movables or immovable properties, irrespective of new and/or old viz. land, building, properties, all types of automobile, motor vehicle, plant and machinery, consumers products electronic goods, ships and air crafts." 20. Section 3, sub-section (37) of the Code provides that words and expression used but not defined in this Code but defined in its own Act etc. including the Securities Contact (Regulation) Act, 1956 and the Securities Exchange Board of India Act, 1992 shall have the meanings respectively assigned to them in those Acts. The 'security' has been defined in Securities Contact (Regulation) Act, 1956 in Section....
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....of ownership of a financial product; (h) underwriting the issuance or subscription of a financial product; or (i) selling, providing, or issuing stored value or payment instruments or providing payment services; (17) "financial service provider" means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator;" 23. The Application under Section 7 of the Code can be filed against a Corporate Debtor. The 'Corporate Debtor' is defined in Section 3, subsection (8), which is to the following effect: "3(8) "corporate debtor" means a corporate person who owes a debt to any person;" 24. Expression 'Corporate Debtor' means a 'corporate person', which is defined in Section 3, sub-section (7), which is to the following effect: "3(7) "corporate person" means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liabi....
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....al Service Provider (rule 2 of the Rules Appropriate Regulator [clause (a) of sub-rule (1) of rule 3 of the Rules] Dealing with third-party assets (rule 10 of the Rules) (1) (2) (3) (5) 1 Non-banking finance companies (which include housing finance companies) with asset size of Rs. 500 crore or more, as per last audited balance sheet Reserve Bank of India To be notified separately" 28. The learned Counsel for the Appellant - NSE has also referred to the Report of Sub-Committee of the Insolvency Law Committee. The said Committee was constituted for insolvency of Financial Service Provider under Section 227, by order dated 16th August, 2019 of the Central Government, Govt. of India, Ministry of Corporate Affairs. In the Report, the Sub-Committee noted the rationale of different procedure for Financial Service Provider. In the Introduction of the Report, following has been stated: "The Insolvency and Bankruptcy Code, 2016 (IBC / Code) provides a consolidated framework for the reorganisation, insolvency resolution and liquidation of corporate persons, limited liability partnerships, partnership firms and individuals n a time-bound manner. The d....
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....under the IBC. In this regard, it had noted the following : "Only certain financial firms that do not handle consumers' money and do not pose systemic risk may be covered under the Insolvency and Bankruptcy Code, as the rationale for covering under a specialised resolution regime does not apply to such firms" 29. It is also relevant to notice that Sub-Committee Report contains - Part-I - Introduction, Part-II - Key Issues and Conclusions in Relation to Formulating a Framework for the Resolution of FSPs under the IBC and there were seven annexures along with Report. Annexure-6 of the Report contains a heading "An overview of the entities engaged in the business of providing financial services in India". Under the heading "B", i.e., "Securities and Exchange Board of India (SEBI)" details of 'Category of Financial Services Provider (FSP)' are mentioned. It is useful to extract heading "B" of Annexure-6, which is as follows: "B. Securities and Exchange Board of India (SEBI) Sl. No. Category of Financial Service Provider (FSP) As on Total 1 Stock Exchanges Sep 15, 2019 6 2 Commodity Derivative Exchanges Sep 15, 2019 3 3 Depo....
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....e to the definition of 'Financial Service' as contained in Section 3(16) of the Code. Section 3(16), sub-clause (e) provides: "3(16) (e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of- (i) buying, selling, or subscribing to, a financial product; (ii) availing a financial service; or (iii) exercising any right associated with financial product or financial service; " 32. When we look into the Memorandum of Association of both the Corporate Debtors against whom Section 7 Applications have been admitted, their services are fully covered by Section 3(16)(e), which is an inclusive definition. The Stock Brokers are also regulated by SEBI (Stock- Brokers and Sub-Brokers) Regulations, 1992. The Stock Brokers are required to be registered with SEBI. The 'Financial Service Provider' and 'Financial Sector Regulator' are defined in Sections 3(17) and 3(18), which are to the following effect: "3(17) "financial service provider" means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator;" (18....
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....l, where this Tribunal held that Financial Service Providers are not amenable to proceedings under Section 7 of the Code. We may refer to the judgment of this Tribunal in Company Appeal (AT) (Insolvency) Nos.32 and 50 of 2018 - Randhiraj Thakur vs. Jindal Saxena Financial Service Private Limited and Ors. In paragraph 10 and 11, this Tribunal held following: "10. If the entire scheme of the I&B Code is seen, it will be evident that the Code is to consolidate and amend the laws relating to reorganisation and insolvency resolution of 'corporate persons', 'partnership firms' and 'individual' in a time bound manner. It is a self-contained Code which is exhaustive in nature when it comes to reorganisation and insolvency resolution. However, an exception had been carved out while enacting the Code that the 'financial service providers' have been kept outside the purview of the Code. Being a consolidating legislation only those acts are permitted which are mentioned in the Code and it cannot be made applicable to 'financial service providers' including 'non-banking financial institutions' and MFI's banks, which have been kept outside the purview of the Code. 11. The Adjud....
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....and derivative transactions, since no companies other than those registered with SEBI can enter into such transactions. Hence, the Respondent is not covered under the definition of Financial Service Provider rather it is well covered under the definition of the Corporate Person and thus, it falls under the category of Corporate Debtor." 39. Section 5(8)(g), which has been relied by the Adjudicating Authority cannot be read dehors from other definitions given in Section 5(7) and 5(8). Section 5(8)(g), on which Adjudicating Authority relied is as follows: "5(8)(g). any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;" 40. Section 5(8)(g) has to be read harmoniously with Section 7 and Section 5(7) and 5(8). Section 5(8)(g) cannot be read in any manner that financial service providers are also covered under Section 5(8)(g). The Adjudicating Authority misconstrued the provisions of the Code and on finding that debt is payable by the Corporate Debtor, admitted Section 7 ....