2024 (9) TMI 323 - Tri - Insolvency and Bankruptcy

Seeking initiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules - Petitioner defaulted in the payment of alleged debt. Whether the petitioner ceases to be a financial service provider after Cancellation of Registration (COR) by RBI with direction to dispose of the financial assets and bring it below 50% of the total assets within three years from the date of cancellation of COR so that petitioner can come out from the Principal Business Criteria (PBC) stipulated for NBFCs? HELD THAT - The applicant was having a valid NBFC license and thus was a financial service provider, on the date of lending by financial creditors as well as on the date of default by the applicant. These two dates are very important as cause of actions for filing this application arose on these two dates i.e creation of debt and in turn default in paying that debt (debt and default). From these facts, a conclusion is drawn that applicant beyond doubt was a financial service provider on the dates when cause of actions arose for filing this application, and therefore is barred for filing section 10 application. It is found that (1) the Corporate Debtor s Certificate of Registration had been cancelled in view of its failure to achieve NOF and CRA and not because of change of its activity (2) Reserve Bank of India has categorically clarified that the Company will continue to be governed by the relevant provisions of the Reserve Bank of India Act, 1954 and various directions/ instructions issued by Reserve Bank of India from time to time even after cancellation of Certificate of Registration and (3) RBI had directed the applicant for disposal of financial assets and bring them below 50% within a period of three years from the date of cancellation of COR. It is found that beyond doubt the petitioner was FSP as on the date of credit facilities sanctioned by the financial creditors and also on the date of default by petitioner and even as on date also its activities continue to be the same and still it is regulated by RBI - there are merit in the submission of SBI that instead of recovering the said debt, the Petitioner has written off its debts only with a sole intention to be outside the purview of Section 277 of the Code. The respondent is a Financial Service Provider and thus, stands excluded from definition of Corporate Person as defined in Section 3(7) of IBC, 2016 and therefore, Chapter II of I B Code, is not applicable to the present petition for initiation of Corporate Insolvency Resolution Process, consequently, the Petition is not maintainable at the behest of the applicant. Petition dismissed.

Summary

Issues Involved:

1. Whether the respondent is a Financial Service Provider (FSP) and thus excluded from being a Corporate Person under Section 3(7) of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Whether the present application for the Corporate Insolvency Resolution Process (CIRP) of the applicant is maintainable.

Issue-wise Detailed Analysis:

1. Financial Service Provider Status:

The primary issue revolves around whether the respondent, M/s Asmitha Microfin Ltd, is a Financial Service Provider (FSP) and thus excluded from the definition of a Corporate Person under Section 3(7) of the IBC, 2016. The Tribunal examined Section 3(7) and Section 3(17) of the IBC, which define a Corporate Person and a Financial Service Provider, respectively. The Tribunal also referred to Section 227, which empowers the Central Government to notify financial service providers for insolvency and liquidation proceedings.

The petitioner was registered as a Non-Banking Financial Company (NBFC) and thus was a Financial Service Provider. However, the Reserve Bank of India (RBI) had canceled its Certificate of Registration (COR) and directed the petitioner to dispose of its financial assets and bring them below 50% of the total assets within three years from the date of cancellation.

2. Maintainability of CIRP Application:

The maintainability of the CIRP application hinges on whether the petitioner ceased to be an FSP after the cancellation of its COR by the RBI. The Tribunal noted that the petitioner was an FSP at the time of lending by financial creditors and at the time of default. The balance sheet of the petitioner revealed that its asset size was Rs.400.08 crores, with financial assets constituting Rs.398.69 crores. The Tribunal observed that the petitioner had written off its financial assets instead of recovering them, which was seen as an attempt to fall outside the purview of Section 277 of the Code.

The Tribunal also considered the objections raised by financial creditors such as SIDBI, PNB, SBI, and Kotak Mahindra Bank. These creditors argued that the petitioner continued to be an NBFC and thus an FSP, and the CIRP could not be initiated against it. They contended that the petitioner had not complied with the RBI's directions to dispose of its financial assets and bring them below 50%.

Judgment:

The Tribunal concluded that the petitioner was an FSP on the date of credit facilities sanctioned by financial creditors and on the date of default. The petitioner continued to be regulated by the RBI, and its act of writing off financial assets did not comply with the RBI's directions. Consequently, the Tribunal held that the petitioner was excluded from the definition of a Corporate Person under Section 3(7) of the IBC, 2016, and the CIRP application was not maintainable.

Conclusion:

The Tribunal dismissed the petition, stating that the respondent was a Financial Service Provider and thus excluded from the definition of a Corporate Person under the IBC. The CIRP application was deemed not maintainable, and the petition was dismissed without costs.