Financial Service Provider - Definition / Legal Terminology and Intorduction - Insolvency and Bankruptcy

As per section 3(17) of the Insolvency and Bankruptcy Code, 2016 Financial Service Provider means- a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator; NITIN PANNALAL SHAH (SUSPENDED DIRECTOR OF SIMANDHAR BROKING LTD.)- [ 2023 (9) TMI 527 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] 33. The SEBI is Financial Sector Regulator. The Stock Brokers and Sub- Brokers under the SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992 are required to be compulsorily registered under Section 3. Regulation contains details of obligation and responsibilities of the Stock Brokers. Schedule-II Regulation, 1992 provides for Code of Conduct for Stock Brokers . The Stock Brokers under heading B Duty to the Investor includes Investment Advice in publicly accessible media. The Stock Brokers, who are covered by the Regulation 1992 are subject to various obligation and duties towards Investors and from the nature of activities as contained in the Memorandum of Association of both the Corporate Debtors, they clearly fall within the definition of Financial Service Provider . 36. This Tribunal in Company Appeal (AT) (Insolvency) No.26 of 2019 Housing Development Finance Corporation Ltd. vs. RHC Holding Private Ltd. has again noticed the relevant provisions of the Code and held that non-banking financial institution, carrying on business of financial institution is a financial service provider and do not come within the meaning of Corporate Person/ Corporate Debtor. 39. Section 5(8)(g), which has been relied by the Adjudicating Authority cannot be read dehors from other definitions given in Section 5(7) and 5(8). Section 5(8)(g), on which Adjudicating Authority relied is as follows: 5(8)(g). any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; 40. Section 5(8)(g) has to be read harmoniously with Section 7 and Section 5(7) and 5(8). Section 5(8)(g) cannot be read in any manner that financial service providers are also covered under Section 5(8)(g). The Adjudicating Authority misconstrued the provisions of the Code and on finding that debt is payable by the Corporate Debtor, admitted Section 7 Application. The order of the Adjudicating Authority against the Corporate Debtor namely - Simandhar Broking Ltd., who being the Financial Service Provider was an entity against whom no proceedings under Section 7 could have been initiated. Initiation of Section 7 proceedings was itself nonmaintainable and Adjudicating Authority ought to have rejected the Application.