The National Company Law Appellate Tribunal, Delhi in its decision dated 10th July, 2019 in HDFC v. RHC Holding Private Limited [Company Appeal (AT)(Insolvency)No. 26 of 2019] while upholding the order of the National Company Law Tribunal has held that the Respondent Company being a Non-Banking Financial Institution ("NBFC") is outside the purview of the Insolvency and Bankruptcy Code, 2016.
Facts and Issues: The Appellant, Housing Development Finance Corporation Ltd. ("HDFC") being a Financial Creditor had filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against M/s. RHC Holdings Pvt. Ltd., the Corporate Debtor which was rejected by the National Company Law Tribunal ("NCLT") by an order dated 6th December 2018 ("Impugned Order"). Being aggrieved by the Impugned Order, HDFC filed an appeal before the National Company Law Appellate Tribunal ("NCLAT") challenging the same.
The issue that arose for consideration before the NCLAT was whether the Respondent being an NBFC providing "financial service" is within or outside the purview of the IBC.
Submissions: It was submitted on behalf of HDFC that the Respondent Corporate Debtor is not a financial service provider and that the intent and purpose of the legislature is to specifically carve out a set of institutions that provide identified financial services and the exclusion cannot be beyond the IBC. It was submitted that the Respondent does not render any of the 9 services mentioned in Section 3(16) of the IBC.
On the other hand, the Respondent submitted that the Respondent is a financial service provider and excluded from the definition of Corporate Person as per Section 3(7) of the IBC. Reliance was also placed on the Appellate Tribunal's decision in Radhiraj Thakur v. Jindal Saxena Financial Services, (Company Appeal (AT)(Insolvency) No. 32 and 50 of 2018) wherein it was held that the application filed by financial creditor under Section 7 of the IBC is not maintainable against the company which has been granted a certificate of registration under the Reserve Bank of India Act, 1934 giving status of a Non-Banking Financial Institution.
Judgment and Analysis: On a perusal of the Certificate of Registration issued by the Reserve Bank of India to the Respondent and the provisions of Sections 3(16) and 3(17) of the IBC and Section 45-I of the Reserve Bank of India Act, 1949, the Tribunal held that the Respondent, NBFC is carrying on the business of financial institution and thereby it being a financial service provider does not come within the meaning of Corporate Person/Corporate Debtor. It was observed that the Adjudicating Authority cannot decide on issues where the NBFC is taking deposits from others in violation of conditions imposed by the Reserve Bank of India while considering an application under Section 7 or Section 9 of the IBC. Accordingly, the order of the NCLT was upheld by the NCLAT.
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