Stock Brokers Classified as Financial Service Providers: NCLT Declares Section 9 Petition Not Maintainable and Exempts from CIRP

The National Company Law Tribunal (NCLT) Hyderabad has classified stock brokers as financial service providers declared the Section 9 petition as not maintainable, and exempted them from the Corporate Insolvency Resolution Process (CIRP).

The National Company Law Tribunal (NCLT), Hyderabad, comprising Mr. Rajeev Bhardwaj (Judicial Member) and Mr. Sanjay Puri (Technical Member), dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016. The Bench held that the Respondent qualifies as a financial service provider under the IBC and is therefore exempt from Corporate Insolvency Resolution Process (CIRP) proceedings. Additionally, the Bench noted that the claimed amount, excluding interest and invoices during the Section 10A period, was below the statutory threshold of ₹1 crore.

In the present case of the Operational Creditor and the Corporate Debtor, the National Company Law Tribunal (NCLT) Hyderabad Bench-II rendered its decision on a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Operational Creditor had provided security and housekeeping services to the Corporate Debtor based on an agreement and raised invoices amounting to Rs. 1,07,63,333, including interest, for services rendered. However, despite repeated demands, the Corporate Debtor failed to make the payment within the stipulated time, leading to the filing of this petition to initiate the Corporate Insolvency Resolution Process (CIRP).

The Corporate Debtor argued that the petition was not maintainable on the grounds that it was a financial service provider, registered as a stockbroker with SEBI, and thus did not fall within the definition of a "corporate person" under Section 3(7) of the IBC. Additionally, the Corporate Debtor contended that the claim did not meet the threshold limit of Rs. 1 crore required under Section 4 of the IBC, as a portion of the claimed amount consisted of interest, which was not agreed upon between the parties.

In its rejoinder, the Operational Creditor insisted that the Corporate Debtor was not engaged in providing financial services at the time of the petition due to restrictions imposed by SEBI. Further, the Operational Creditor argued that the Corporate Debtor was liable to pay interest under the provisions of the Micro, Small and Medium Enterprises Development (MSME) Act.

The Tribunal found that the Corporate Debtor was indeed a financial service provider, as defined under the IBC, and thus not eligible for insolvency proceedings under Section 9. It also noted that the interest claimed by the Operational Creditor could not be included in the total amount, as there was no agreement to that effect. Additionally, some invoices raised during the pandemic period fell within the exclusion of Section 10A of the IBC, further reducing the claimed amount below the threshold limit of Rs. 1 crore.

Based on these findings, the Tribunal dismissed the petition.

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REEDLAW 2024 NCLT Hyd 09603