Financial Service Providers like NBFCs are exempt from insolvency proceedings under the Insolvency and Bankruptcy Code, 2016
In an important decision, the principal bench of National Company Law Tribunal at New Delhi has held that financial service providers like NBFCs are exempt from insolvency proceedings under the Insolvency and Bankruptcy Code 2016.
President MM Kumar and Member SK Mohapatra decided the company petition filed by HDFC Limited praying for initiating Corporate Insolvency Resolution Process against RHC Holding Private Limited.
According to HDFC, at the request of corporate debtor RHC Holding, a corporate loan of Rs.200 cr was sanctioned for repayment of pre-existing debts of RHC Holding in April 2016. However, the debtor started defaulting in interest payments and even after the sale of pledged shares of RHC, a substantial amount remained outstanding. Two years later, as on May 31, 2018, a total of more than Rs.41 cr was still owed to HDFC.
RHC opposed HDFC’s insolvency application and submitted that the initiation of Corporate Insolvency and Resolution process under Section 7 of the Code is not maintainable as they are a financial service provider and cannot be termed as a corporate debtor under the code.
After perusing through the certificate issued by the Reserve Bank of India, the bench concluded that RHC is indeed a Non-banking Financial Company and under Section 3(8) of the Insolvency Code, a Corporate Debtor is defined as – a ‘corporate person’ who owes debt to any person. While under Section 3(7) a ‘corporate person’ does not include a financial service provider.
Therefore, the insolvency application was dismissed as not maintainable.