Are Financial Providers Open to Insolvency?

By Manisha Chaudhary,  Managing Partner

The recent judgement dated 4.11.2019 delivered by the Hon’ble National Company Law Tribunal, New Delhi Bench V – in the matter of Apeejay Trust v. Aviva Life Insurance Co. India Ltd. appears to be incorrect in view of various provisions of the Insolvency and Bankruptcy Code, 2016 (IB Code) particularly with regards to the definition of ‘Corporate Debtor’ under Section 3(8) and ‘Corporate Person’ under Section 3(7).

To appreciate the judgement, it is pertinent to reproduce the arguments made by the operational creditor before the Hon’ble Bench, the counter argument of the corporate debtor and the ultimate finding of the Hon’ble Bench.

Argument of the alleged Corporate Debtor :

“7. Ld. Counsel for the Corporate Debtor has raised a preliminary objection regarding maintainability of the petition on the ground that they are an insurance company and therefore, they are “Financial Services Provider”, the business of which is strictly regulated by the “Financial Sector Regulator” and, therefore, as per the provisions of the IBC, the present petition cannot lie against the respondents and the same deserves to be dismissed. Ld. Counsel for the Corporate Debtor has further given the example of Banks, where any such proceedings against the Banks cannot be initiated and has contended that no such proceedings are initiated against the banks also on the ground of absolute bar: Reliance in this regard has been placed upon the provision of Section 3(17) and 3(18) of the Insolvency and Bankruptcy Code, 2016. The provision of which are quoted below:”

Section 3(17): – ”financial service provider” means a person engaged in the business of providing financial services in terms of authorization issued or registration granted by a financial sector regulator;

Section 3(18): – ”financial sector regulator” means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as may be notified by the Central Government;”

Disclaimer: This article was first published on on 14th November, 2019.



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