Skip to main content

Financial Service Providers having asset size less than Rs. 500 crores cannot be a Corporate Debtors under IBC

In SHAPOORJI PALLONJI FINANCE PRIVATE LIMITED vs REKHA SINGH, three separate  applications was filed before NCLT Jaipur by the Applicant as Financial Creditor under under Section 60 & 95 of IBC read with Rule 7(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 to initiate insolvency resolution process against Rekha Singh,  Ajay Kumar Singh and Siddharth Singh (hereinafter referred to as the Personal Guarantors / Applicants). 

Background

According to the Applicant, the Personal Guarantors had through a personal guarantee secured repayment of a term loan of Rs. 25,00,00,000/- advanced by the petitioner to Jumbo Finvest (India) Limited, an NBFC , under facility agreement dated 27.03.2018. However, the Debtor had failed to make payment of interest amounts for the months of September 2020 & October & October 2020 and also failed to repay the principal amount instalment for the quarter ending in September 2020.

In reply, the Personal Guarantors filed application under Section 60(5) of the Insolvency and Bankruptcy Code ('IBC' / 'Code'),2016 read with Rule 49 of the NCLT Rules, 2016, questioning the maintainability of the application filed against them and among the various objection filed by them, they pointed out that the definition of a 'Corporate Person' as per the IBC excludes Financial Service Providers such as Jumbo Finvest (India) Limited.

Judgment

The NCLT observed that the Principal Borrower, i.e. Jumbo Finvest (India) Ltd. is a Financial Service Provider having been granted a Certificate of Registration to commence / carry on the business of Non-Banking Financial Institution without accepting public deposits, by the RBI which ordinarily would exclude it from the Insolvency proceedings as per Section 3(7) of the Code.

However, the NCLT also observed that before coming to any conclusion, it must be noted that by the powers provided to the Central Govt. under Section 227 of the Code, two notifications being vide notification G.S.R. 852(E) dated 15.11 .2019 notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicatory Authority) Rules, 2Ol9 (referred to as 'FSP Rules'). and Notification S.O. 4139(E) dated 18.11 .2019 (referred to as 'FSP Threshold Notification') have been introduced and as laid down in the above notifications, the expression 'Corporate Debtor' wherever they occur, shall mean "financial service provider" but subject to a threshold limit of asset size of Rs. 500 crores and above. As per the last audited balance sheet of Jumbo Finvest (India) Limited for year ending on 3 1 .03.2020, the asset size is approx. Rs. 487 crores and as per unaudited figures for the year ending 3 1 .03.2021, the total asset size of Jumbo Finvest (India) Limited is approx. Rs. 407 Crores. Therefore, Jumbo Finvest (India) Limited, is excluded. 

The NCLT also provided a flow chart as under to explain the different definitions  revolving around Corporate Debtor and Financial Creditors and their relation with the Financial Service providers :

Note

The above issue displays one of the many reasons behind the delay in the Indian legal process. Inexplicably, without changing the definition of the 'Corporate Person; which clearly excludes Financial Service Provider', as new rule was introduced to deal with the FSPs.

Comments

Post a Comment

Most viewed this month

Amendment of plaint under Order VI Rule 17 of the CPC explained

Cause Title :  Ganesh Prasad vs Rajeshwar Prasad, SLP (C) NO. 28377 OF 2018, Supreme Court Of India Date of Judgment/Order : 14/3/2023 Corum : J. B. Pardiwala, J. Citied:  Revajeetu Builders and Developers v. Narayanaswamy & Sons and Others reported in (2009) 10 SCC 84 North Eastern Railway Administration, Gorakhpur v. Bhagwan Das reported in (2008) 8 SCC 511 P.A. Jayalakshmi v. H. Saradha and Others reported in (2009) 14 SCC 525 B.K. Narayana Pillai v. Parameswaran Pillai and Another reported in (2000) 1 SCC 712 A.K. Gupta and Sons Ltd. v. Damodar Valley Corporation reported in AIR 1967 SC 96 Life Insurance Corporation of India v. Sanjeev Builders Private Limited and Another, Civil Appeal No. 5909 of 2022 dated 01.09.2022 Firm Sriniwas Ram Kumar v. Mahabir Prasad and Others reported in AIR 1951 SC 177 G. Nagamma and Another v. Siromanamma and Another reported in (1996) 2 SCC 25 Praful Manohar Rele v. Krishnabai Narayan Ghosalkar and Others reported in (2014...
Post a Comment
Read more

Owner of vehicle is not expected to verify the genuineness of the driving license before appointing a driver

Cause Title : Rishi Pal Singh Versus New India Assurance Co. Ltd & Ors., Civil Appeal No. 4919 Of 2022, The Supreme Court Of India Date of Judgment/Order : July 26, 2022 Corum : Hemant Gupta; J., Vikram Nath; J. Background the truck owned by the appellant met with an accident. The owner deposed before the court that before employing the driver, he had taken his driving test and that he was driving the vehicle satisfactorily and  that the driver was employed with him for 3 years before the date of the accident. He produced his driving license. This was reaffirmed by the driver who deposed that the driving license was obtained from the driver and it was issued from Nagaland, but no such license was produced on record. Both the Motor Accident Claims Tribunal and the High Court have held that the owner has alleged that the driver had a driving license from Nagaland but the same was not produced and therefore, the Insurance Company is entitled to recover the awarded amount...
Post a Comment
Read more

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more