The NCLAT, New Delhi bench observed that a notification by MCA has been issued vide which Financial Service Providers have been brought under the IBC. However, the notification puts a threshold which is an asset size of Rs. 500 crores or more.
It was opined that the current law on this matter is that a financial service provider having assets worth Rs. 500 crores or more can only proceed for insolvency and liquidations. It was enunciated that the Tribunal would have jurisdiction that is exercised on the date when an application can be filed against the financial service provider for insolvency. Moreover, an application under Section 95 can only be filed against the personal guarantor only when on the same date insolvency can be commenced against the financial service provider.
Merely for argument’s sake, the Appellate Authority analyzed the issue where the asset size of the financial service provider as on the date of filing of the application was more than Rs. 500 crores, but reduced during the pendency of the application, then it that case whether NCLT would lose its jurisdiction.
In this regard, the Bench opined that in the case of statutory precondition for the exercise of jurisdiction, the pre-condition must be fulfilled before the jurisdiction is exercised by the tribunal. The Bench observed that if the contention of the Respondent is accepted that if asset size is reducing during the pendency, the Tribunal loses jurisdiction then the same would be contrary to the objective of IBC which is speedy
Brief Facts:
An agreement was executed between one Jumbo Finvest (India) Ltd. (“JFIL”, Financial Service Provider) and the Appellant (Non-Banking Finance Company) under which a facility was provided by the Appellant. The facility agreement provided for security.
The Respondents thereafter issued a deed of personal guarantee in favour of the Appellant. JFIL delayed repayments of the amount disbursed to it. A recall notice was sent to Respondents along with JFIL by the Appellant demanding payment.
Thereafter, 3 separate company petitions were filed by the Appellant. The Respondents contended that the application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) is not maintainable against the personal guarantors. NCLT concurred with the view of the Respondents and dismissed the petitions. Hence, the present 3 appeals are filed.
Contentions of the Appellant:
It was submitted that the NCLT did not read the last balance sheet of JFIL in the right manner and hence it concluded that JFIL was not covered under the definition of a Corporate Person. It was contended that since the total assets of JFIL were more than Rs. 500 crores, the Section 95 application would be maintainable against the personal guarantors.
Contentions of the Respondent:
It was argued that the NCLT could not have adjudicated on the Section 95 application as the asset size of JFIL was reduced from Rs. 500 to Rs. 407 crores. The NCLT lost its jurisdiction to adjudicate.
Observations of the Tribunal:
The main issue to be ascertained was whether the Section 95 Application was maintainable against the Personal Guarantors.
The Tribunal noted that Section 3(7) defines ‘Corporate Persons’ exhaustively and specifically excludes financial service providers. A conjoint reading of Section 3(7) and 3(8) show that any financial service provider cannot be a Corporate Debtor.
However, Section 227 of the IBC is a non-obstante clause and therefore it gives an overriding effect to other provisions. Therefore, the Financial Service Providers can be brought under the IBC for insolvency and liquidation if the Central Government deems fit after consultation with the financial sector regulator.
It was observed that a notification by MCA has been issued in this regard vide which Financial Service Providers have been brought under the IBC. However, the notification puts a threshold which is an asset size of Rs. 500 crores or more.
Merely for argument’s sake, the Appellate Authority analyzed the issue where the asset size of the financial service provider as on the date of filing of the application was more than Rs. 500 crores, but reduced during the pendency of the application, then it that case whether NCLT would lose its jurisdiction.
In
this regard, the Bench opined that in the case of statutory
precondition for the exercise of jurisdiction, the pre-condition must be
fulfilled before the jurisdiction is exercised by the tribunal.
The Bench observed that if the contention of the Respondent is accepted that if asset size is reducing during the pendency, the Tribunal loses jurisdiction then the same would be contrary to the objective of IBC which is speedy disposal. Therefore, the said contention was rejected.
It was enunciated that the Tribunal would have jurisdiction that is exercised on the date when an application can be filed against the financial service provider for insolvency. Moreover, an application under Section 95 can only be filed against the personal guarantor only when on the same date insolvency can be commenced against the financial service provider.
It was noted that the last balance sheet showed an asset size of more than Rs. 500 crores and therefore, the application filed by the financial creditor against the personal guarantor was fully maintainable.
The decision of the Tribunal:
Based on the abovementioned reasons, the order of NCLT was set aside and accordingly all the appeals were allowed.
Case Title: Shapoorji Pallonji Finance Pvt. Ltd. V. Rekha Singh with other connected matters
Coram: Justice Ashok Bhushan, Barun Mitra (Technical Member)
Case No: Company Appeal (AT) (Insolvency) No. 397 of 2022 with other connected matters
Advocates for Appellant: Advs. Mr. Gaurav Mitra, Mr. Kunal Kanungo, Mr. Ankit Acharya, Ms. Tanushree Sogani
Advocates for Respondents: Advs. Mr. Anmol Vyas, Mr. Amit Agrawal, Ms. Radhika Yadav, Mr. Vivek Sinha, Mr. Vivek Malik
Social media is young.
Social media raises questions.
Social media is not satisfied with an answer.
Social media looks at the big picture.
Social media is interested in every detail.
social media is curious.
Social media is free.
Social media is irreplaceable.
But never irrelevant.
Social media is you.
(With input from news agency language)
If you like this story, share it with a friend!
We are a non-profit organization. Help us financially to keep our journalism free from government and corporate pressure .
0 Comments