New Delhi: Appellate tribunal NCLAT has rejected Equitas Small Finance Bank's appeal to initiate insolvency proceedings against Jumbo Finvest, upholding a National Company Law Tribunal order in the matter. Earlier, the Jaipur Bench of NCLT had rejected an insolvency plea against Jumbo Finvest, observing that it is a Financial Service Provider within the meaning of 3(17) of the Insolvency & Bankruptcy Code and is not a corporate person against whom a Section 7 application can be initiated.
This was challenged by Equitas Small Finance Bank before the National Company Law Appellate Tribunal, contending that Jumbo Finvest was registered as a financial service provider by the RBI. The banking sector regulator on January 16, 2020, barred it from increasing the size of its balance sheet and was prohibited from accessing public funds in any form until further notice, as well as lending.
It was submitted that in view of the order of the RBI, Jumbo Finvest actually is not in the business of a financial service provider, and the protection which is envisaged in the provisions of the Code cannot be held to be applicable in the facts of the present case. However, NCLAT said: "We are not persuaded to accept the submission that in view of the order of prohibition issued by RBI, the Respondent (Jumbo Finvest) shall lose its character and nature of the financial service provider." NCLAT observed that Jumbo Finvest's registration was cancelled on October 14. This clearly means that it was a registered financial service provider till the date the registration was cancelled.
"We are of the view the provisions of the Code shall be applicable, and the mechanism provided in the Code for initiating CIRP against the financial service provider has to be in accordance with the Code," said a two-member NCLAT bench comprising Justice Ashok Bhushan and Member (Technical) Barun Mitra. Financial Service Providers (FSPs) like NBFCs, banks, and insurers were initially excluded from the standard Corporate Insolvency Resolution Process (CIRP) under IBC, but were later brought under special provisions via notifications and rules (like the FSP Rules, 2019) for systemic ones.
Now, CIRP can be initiated against them, but usually, the relevant regulator, like RBI, must file the application, not just any creditor, requiring regulator approval for resolution plans to ensure public interest and fit-and-proper management. "Thus, we do not find any error in the order of the Adjudicating Authority rejecting the section 7 application. We make it clear that rejection of the section 7 application shall not preclude the Appellant from taking such remedy available in law with regard to its dues against the Respondent," said NCLAT.
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