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TMI Blog2024 (9) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... itiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon, contending that the Petitioner defaulted in the payment of alleged debt of Rs. 143,69,07,866/-. 2. The averments by the Corporate Applicant i.e. M/s Asmitha Microfin Ltd in brief are:- 2.1 The company was incorporated in the year 2001 with the main object of carrying micro finance business and registered with the Reserve Bank of India as an NBFC vide certificate of Registration dated 07.06.2022. 2.2 The Company was smoothly carrying out its business in 14 States pan India until 2010. However, the enactment of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending Act), 2010, had impacted the recovery of advances portfolio of the Company in the States of Telangana and Andhra Pradesh (erstwhile State of Andhra Pradesh), which had adversely affected the business operations of the Company. 2.3 In order to meet the repayment obligations, the outstanding loans of the Applicant from the commercial banks and financial institutions were restructured in September 2011 under Corporate Debt Rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present petition and granted leave to the RBI to file counter. 3.2 The Respondent filed counter strongly contending that the application is totally misconceived and is liable to be dismissed as the application qua RBI is not maintainable. The contentions raised in the counter of the Respondent are as follows: 3.2.1 RBI is one of the "financial sector regulator" in terms of Sub-Section 18 of Section 3 of IBC. By virtue of powers conferred under Section 45L of the RBI Act, 1934, the RBI had cancelled the Cancellation of Registration (COR) in terms of Section 45-IA (6) and had advised the Corporate Applicant 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, for the company to come out from the Principal Business Criteria (PBC) stipulated for NBFCs, besides directing the Corporate Applicant to submit audited financials for the next three years to monitor if the Corporate Applicant is carrying out NBFC activity unauthorisedly without COR from the Bank or otherwise. 3.2.2 According to RBI, it has no role in the CIRP against the Corporate Applicant as it does not fall in the ambit of "financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company in the preceding financial year which stood at Rs. 783.33 crores, with financial assets being Rs.780.41 crores. The Contention of the Kotak Bank that the Corporate Applicant instead of recovering the loans, has written off the loan and advances only with the sole intention to bring the financial assets below the Rs.500 crores threshold prescribed in the notification dated 18.11.2019. Kotak Bank would further contend that the Corporate Applicant without disclosing the fact that interlocutory applications filed by Kotak Bank in OSA 8 of 2017 for review of the approved scheme of merger involving the Corporate Applicant is pending adjudication before Hon'ble High Court Hon'ble High Court has filed the present Petition. 4.2 Indian Bank filed reply stating that tt has no objection to the Corporate Applicant being put under CIRP as the Corporate Applicant failed to adhere to the payment terms of the Term Loan of Rs. 25,00,00,000/- sanctioned to the Corporate Applicant and despite the implementation of the CDR package, the Corporate Debtor was not in a position to service its debt, the account of the Corporate Debtor was classified as NPA. The Corporate Debtor had acknowledged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le a Petition seeking CIRP against the Petitioner. SBI further contended that the letter dated 03.04.2019 issued by the RBI does not indicate cancellation of registration of the Petitioner as NBFC. However, according to SBI, the letter clearly states that the Petitioner should dispose of the financial assets and bring it below 50% of the total assets within three years from the date of cancellation of Certificate of Registration, but the audited financial statements for the year 2019-20 & 2020-21 indicates 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. SBI vehemently opposed admission of the petition stating that it is nothing but to halt and thwart the recovery proceedings initiated by the SBI against the Petitioner to recover the outstanding dues. SBI further stated that the Corporate Debtor being an NBFC is covered under RBI Rules and cannot invoke the provisions of IBC and only the appropriate Regulator i.e. RBI can seek initiation of CIRP against the Petitioner under the Code. Thus submitting, prayed for dismissing the present petition. 5. The Petitioner herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally untenable and contrary to the provisions of the Code. 6. Written submissions are filed by the Petitioner, SIDBI and State Bank of India, reiterating the averments and contentions raised in the Petition and Counters. 7. In the light of the contest put forth by both the parties the point which arises for our consideration is: " Whether the respondent is a Financial Service Provider as claimed by some of the financial creditors and thus, stands excluded from Corporate Person as defined in Section 3(7) of IBC, 2016 If so, whether the present application for the Corporate Insolvency Resolution Process of the applicant is maintainable? " 8. We have heard the learned counsels from both sides and the Ld. Counsels for Financial Creditors, perused the record and the written statements and other documents submitted to Tribunal in this case. Point. "Whether the respondent is a Financial Service Provider as claimed by some of the financial creditors and thus, stands excluded from Corporate Person as defined in Section 3(7) of IBC, 2016 If so, whether the present application for the Corporate Insolvency Resolution Process of the applicant is maintainable? " 9. Before we proceed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by Central Government dated 18.11.2019, RBI is the appropriate Regulator for NBFCs (which include housing finance companies) with asset size of Rs. 500 crores or more. However, the same is not applicable to the Corporate Debtor as it is no longer an NBFC registered with RBI, which fact has been admitted by the Corporate Applicant in IA (IB) No. 554/2022. As such the Corporate Applicant is neither a "financial service provider" nor RBI is the appropriate "Financial Sector Regulator". 12. Out of total 24 financial creditors of the Corporate Debtor, only five financial creditors i.e. SIDBI, PNB, SBI, Kotak Mahindra Bank and Indian Bank have filed their counters. Out of the five, Indian Bank by way of its counter, had stated that it has no-objection if the Application is admitted. However, the other four financial creditors i.e. SIDBI, PNB, SBI and Kotak Mahindra Bank have objected to the Petition primarily on the ground that the Applicant herein is a "Financial Service Provider" in terms of Section 3 (17) of the Code and that CIRP cannot be initiated against the Financial Service Provider. 13. The learned counsels for the financial creditors contend that RBI is one of the "fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly with a sole intention to be outside the purview of Section 277 of the Code. SBI vehemently opposed admission of the petition stating that it is nothing but to halt and thwart the recovery proceedings initiated by the SBI against the Petitioner to recover the outstanding dues. SBI further stated that the Corporate Debtor being an NBFC is covered under RBI Rules and cannot invoke the provisions of IBC and only the appropriate Regulator i.e. RBI can seek initiation of CIRP against the Petitioner under the Code. Thus submitting, counsel for SBI prayed for dismissing the present petition. Our Analysis : 15. Admittedly, the petitioner which is registered as an NBFC with an authorization from Financial sector regulator / RBI to carry on financial services was a "financial service provider" in terms of Section 3(17) and thus in terms of Section 3(7) is excluded from Insolvency Resolution and Liquidation for Corporate Persons under section 10 of the IBC, 2016, under Part-II of the Code. But the only short issue which remains for our consideration now is whether the petitioner ceases to be a financial service provider after Cancellation of Registration (COR) by RBI with direction to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n careful perusal of the above letters we find 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. 20. The contention of the applicant that it is no more governed by RBI on account of cancellation of COR can not be accepted as RBI has made it very clear in para 2 of its letter No.DNBS (H) CMS No./ 1586/00.00.468/ 2018-19 dated 03.04.2019 . Further, the intention of RBI , while giving direction to applicant to dispose of its financial assets and bring them below 50% within a period of three years from the date of cancellation of COR, must have been that the petitioner will recover the amount lent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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