Mortgage lender HDFC's plea to initiate corporate insolvency resolution proceedings (CIRP) against RHC Holding, a non-banking financial services provider promoted by billionaire brothers Malvinder and Shivinder Singh, has been rejected by the National Company Law Appellate Tribunal (NCLAT) on Wednesday. The firm being a financial service provider doesn't come under the ambit of "corporate person", against whom CIRP could be commenced under the Insolvency and Bankruptcy Code (IBC), the NCLAT said, upholding an earlier ruling by NCLT.
RHC Holding had taken a Rs 200-crore loan from HDFC in April 2016. While the firm serviced the interest part on time for the first quarter, it started defaulting on repayment thereafter. Even after adjusting the proceeds from the sale of pledged shares, an amount of Rs 41.09 crore remained due.
HDFC therefore moved the bankruptcy court seeking to initiate CIRP under section 7 of the IBC against RHC Holding.
However, the NCLT rejected its plea stating that since financial services providers are excluded from the definition of "corporate person," as per section 3(7) of the IBC, CIRP cannot be initiated for firms rendering financial services. Challenging the order, HDFC moved the appellate tribunal.
Upholding the NCLT order, a two-member NCLAT bench, headed by Chairman Justice SJ Mukhopadhaya, on Wednesday said, "The adjudicating authority (NCLT) rightly rejected the application. We find no merit in the appeal, it is accordingly dismissed," it said.
"It is clear that the respondent (RHC Holding), a non-banking financial institution is carrying on business of financial institution and thereby, it being financial service provider do not come within the meaning of corporate person/corporate debtor."
IBC, under Section 3 (7), defines a "corporate debtor" as "a corporate person who owes a debt to any person." The IBC excludes a financial service provider as a corporate person. RBI had on April 3, 2008 certified RHC Holding, formerly known as Solaris Finance, to commence/carry on the business of non-banking financial without accepting public deposits.
The NCLAT also said if there was any violation by RHC Holding, HDFC should seek remedies from the central bank, not from the bankruptcy court.
HDFC Ltd had earlier argued that since RHC Holdings had committed a default in repayment of the loan amount even after demands were raised by the bank, the bankruptcy court was needed not to look into any other criteria for admission of the insolvency application.