NCLAT Dismisses CIRP Plea Against Strategic Credit Capital, Says Section 7 IBC Barred For Financial Service Provider

The National Company Law Appellate Tribunal (NCLAT) at Delhi recently dismissed an appeal filed by Religare Finvest Limited against the National Company Law Tribunal's order rejecting its Section 7 insolvency plea against Strategic Credit Capital Pvt. Ltd.

A bench of Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey held that insolvency proceedings cannot be initiated against a Financial Service Provider.

The tribunal observed, “We do not find the arguments of the appellant financial creditor to be convincing and we hold that as on the date of financial transactions the respondent was financial service provider and the Section 7 proceedings under the Code were not permissible on it and for this sole reason itself the appeal could be dismissed.”

Religare had moved the NCLT Delhi Bench seeking initiation of corporate insolvency resolution proceedings against Strategic Credit Capital. The NCLT dismissed the plea. Religare then approached the appellate tribunal.

The dispute arose from a Rs. 40 crore loan disbursed in July 2015 by Nishu Finlease Private Limited to Strategic Credit Capital. The loan was secured by a pledge of 1,32,33,328 equity shares of ABG Shipyard Limited.

In June 2016, the loan was assigned to Religare for Rs 45 crore. A termination cum recall notice was issued on June 24, 2016 after alleged default.

In July 2017, the parties entered into a comprehensive settlement agreement along with other entities. The agreement acknowledged total dues of Rs. 793.67 crore, including the Rs 45 crore exposure of Strategic Credit Capital. It required the principal parties to procure Rs 400 crore within nine months. No payment was made. Religare filed its Section 7 petition in June 2019.

Before the appellate tribunal, Religare argued that the petition was within limitation. It said invocation of pledged shares did not extinguish its rights. It contended that the settlement agreement did not wipe out the original financial debt and that default stood established. It also argued that the respondent was not a Financial Service Provider on the date of filing.

The tribunal rejected the limitation objection. It held that the petition was filed within time and that the settlement agreement contained acknowledgment of liability. It also held that creditor rights were not relinquished merely because pledge remedies were invoked.

However, the tribunal found that Strategic Credit Capital was registered as a Non-Banking Financial Company at the time of the financial transactions. That made it a Financial Service Provider under the Code. The bench clarified that the relevant date for determining status was the date of the financial transaction, not the date of filing.

The tribunal further observed, “In the present background when the Corporate Debtor itself is a Financial Service Provider and thus Section 7 petition itself is not maintainable and therefore other questions are only academic. But we are delving into other issues for sake of completeness.”

Holding that a Section 7 CIRP petition is not maintainable against a Financial Service Provider, the NCLAT dismissed the appeal.