Supreme Court Issues Notice In Plea Against NCLAT Order Treating Deregistered NBFC As Financial Service Provider
The Supreme Court on Thursday issued notice on a challenge to a National Company Law Appellate Tribunal (NCLAT) ruling that refused to allow an NBFC to initiate insolvency proceedings against itself. The tribunal held that the company remained a financial service provider despite cancellation of its Reserve Bank of India (RBI) registration under the Insolvency and Bankruptcy Code (IBC).
The NCLAT, in its April 9, 2026, order, upheld the National Company Law Tribunal (NCLT), Hyderabad Bench's February 12, 2024, decision rejecting the company's Section 10 IBC application.
The application sought to initiate the Corporate Insolvency Resolution Process (CIRP).
The NCLAT held that cancellation of the company's Certificate of Registration (CoR) did not change its status as a financial service provider.
It was therefore excluded from the definition of a “corporate person” under Section 3(7) of the IBC, making its Section 10 application non-maintainable.
A Division Bench of Justices B.V. Nagarathna and R. Mahadevan, after hearing the matter, directed, “Issue notice to the respondents.”
Appearing for Asmitha Microfin Ltd, Senior Advocate S. Niranjan Reddy argued that the company was no longer an NBFC when it filed its Section 10 application, as the RBI had already cancelled its CoR.
“Much prior to my filing this application, RBI cancels my registration, tells me I'm no longer a non-banking financial company,” Reddy said.
Reddy submitted that a recent Supreme Court judgment, Ankush Saluja v. Urmila Goel, supported the company's case that the status of a financial service provider has to be considered on the date when a Section 7 or Section 10 application is filed.
“The NCLAT states and the Supreme Court upholds this principle that once a financial service provider is, a certificate is cancelled. The date on which section 10 or section 7 is filed would be the relevant date. They can't be treated as a financial service provider,” Reddy submitted.
He further argued that the RBI itself had taken the position that following cancellation of the CoR, the company was no longer a financial service provider, whereas the NCLT had taken a contrary view.
“RBI says no, once we cancel, they can't come before us.”
Asmitha was incorporated in 2001 with the main object of carrying on microfinance business. It obtained an RBI Certificate of Registration as an NBFC on June 7, 2002 and subsequently carried on microfinance operations across several states.
Its recovery of loans was severely affected following the enactment of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending Act), 2010, leaving it unable to service debts owed to banks and other financial institutions.
After efforts to revive the business failed, RBI cancelled Asmitha's CoR on February 22, 2019 for failure to maintain the prescribed Net Owned Funds (NOF) and Capital to Risk Assets Ratio (CRAR). The cancellation attained finality.
Following the cancellation, RBI directed Asmitha to dispose of its financial assets and bring them below 50% of its total assets within three years. It also required the company to submit audited financial statements for the following three years and pass a Board resolution stating that it would not carry on NBFC business without obtaining a fresh CoR.
Asmitha later approached the NCLT under Section 10, contending that it had ceased its NBFC operations and was no longer a financial service provider.
The NCLT rejected the application, holding that Asmitha continued to be a financial service provider under Section 3(17) of the IBC and was therefore excluded from the definition of a “corporate person” under Section 3(7).
The NCLAT upheld the decision.
It noted that the NCLT had found Asmitha's financial assets were artificially brought below ₹500 crore through write-offs and that the company remained under RBI's regulatory supervision. Asmitha had not controverted these findings, the NCLAT noted.
The NCLAT consequently held that Asmitha remained a financial service provider despite cancellation of its CoR and dismissed the appeal.