NCLAT dismisses HDFC insolvency plea against RHC Holding

The National Company Law Appellate Tribunal (NCLAT) has rejected HDFC appeal against an order passed by the NCLT dismissing HDFC insolvency plea against Malvinder and Shivinder Singh owned RHC Holding Pvt Ltd.

The judgment was passed by a two-member Bench of Chairperson Justice SJ Mukhopadhyay and Member (Judicial) Justice AIS Cheema.

RHC holding had taken a loan of Rs. 200 crore from HDFC in April 2016. Even after adjusting the proceeds from the sale of its pledged shares, a substantial amount of over Rs. 41 crore remained outstanding. HDFC had thus sought to initiate insolvency proceedings against RHC Holding under Section 7 the Insolvency & Bankruptcy Code.

The plea was dismissed by the Adjudicating Authority i.e. NCLT on the ground that RHC Holding being a non-banking financial institution,  was out of the purview of IBC.

In appeal, HDFC argued that RHC Holding was not a ‘financial service provider’ in terms of Section 3(17) IBC as it only offered and managed the assets consisting of financial products belonging to another person.

RHC Holding, on the other hand, provided a certificate of Registration under the Reserve Bank of India Act, 1934 showing its status as a “Non-Banking Financial Institution.” It was, however, not allowed to accept public deposits.

After hearing the parties, the Appellate Tribunal stated that it was not necessary that the “financial service providers” must accept the deposits.

“The definition of “financial service” if read with definition of “financial service provider”, it is clear that it is not necessary that the “financial service providers” must accept the deposits.“

It further added that if an entity engaged in activities as defined under Section 3(16), it would also come within the definition of “financial service provider”.

However, the activities listed under the section are inclusive and other services could also come within the meaning of “financial services”.

“If any of the activity as defined in Section 3(16) of the I&B Code such as safeguarding and administering assets consisting of financial products belonging to another person, or agreeing to do so; effecting contracts of insurance; Offering, managing or agreeing to manage assets consisting of financial products belonging to another person; rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of- buying, selling or subscribing to, a financial product; availing a financial service etc., they also come within the definition of “financial service provider”

..The definition of ‘financial services’ as defined in Section 3(16) of I&B Code is not limited to the 9 activities as shown at Clause (a) to (i) of Section 3(16). The aforesaid Clauses (a) to (i) are inclusive which means there are other services means there are other services which come within the meaning of “financial services”.“

The Appellate Tribunal also perused Section 45-I(f) of the Banking Regulation Act, which defines “non-banking financial institutions” to ascertain RHC Holding’s status.

“it is clear that the Respondent, a non-banking financial institution is carrying on business of financial institution and thereby it being financial service provider does not come within the meaning of Corporate  Person/Corporate Debtor“, it said.

For these reasons, the appeal was dismissed by the Appellate Tribunal.

“For the reasons aforesaid, we hold that the application under Section 7 of I&B Code is not maintainable. Therefore, the Adjudicating Authority rightly rejected the application. We find no merit in the appeal, it is accordingly dismissed. “

HDFC was represented by Senior Advocate Amit Singh Chadha with Advocates Amrita Singh and Srishti Govil.

RHC Holding was represented by Advocate Aditya Dewan.

Read the Judgement: