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Synopsis

The National Company Law Tribunal recently stated that a Section 7 petition under the Insolvency and Bankruptcy Code 2016 is not maintainable against a financial service regulator.

“When the Respondent is a Financial Service Provider, application under Section 7 is not maintainable since he is not included in the definition of corporate person as defined in Section 3(7) of the Code,” the order reads.

The National Company Law Appellate Tribunal, consisting of Chairperson Justice Ashok Bhushan, Technical Member Barun Mitra, and Technical Member Arun Baroka, heard an appeal against the order of the NCLT rejecting the Section 7 application.

Global Capital Pvt Ltd filed an application under Section 7 of the IBC 2016 against Narayan Securities before the NCLT, seeking to initiate a Corporate Insolvency Resolution Process.

However, the NCLT rejected the petition on the ground that a Section 7 application is not maintainable against a financial service regulator. Against this NCLT’s order, Global Capital filed an appeal before the NCLAT.

In the appeal, the NCLAT also condoned the delay of 106 days, citing that defects were communicated to the appellant on several occasions.

The counsel representing the appellant argued that despite the respondent being a financial service provider, the nature of the relationship between Global Capital and Narayan Securities was different.

Therefore, he argued that the Section 7 application against the financial service regulator should be maintainable.

However, the NCLAT concurred with the observations of the NCLT and stated that there was no merit in the appeal filed by Global Capital.

“We are of the view that the Adjudicating Authority has not committed any error in rejecting the application as not maintainable. We, thus, do not find any ground to interfere with the impugned order. Appeal is dismissed. It is, however, open for Appellant to take such other remedy as available to the Appellant against the Respondent,” the order reads.

Case title: Globe Capital Market Ltd. vs Narayan Securities Ltd