The National Company Law Tribunal (NCLT) on Tuesday dismissed a plea to initiate insolvency proceedings against Religare Enterprises Ltd observing that it was a financial service provider and does not come under the ambit of the Insolvency & Bankruptcy Code (IBC).
A principal bench headed by NCLT President Justice Ramalingam Sudhakar and Atul Chaturvedi held that the petition filed by Ligare Aviation Ltd against Religare Enterprises was "not maintainable" and does not fall under the definition of "Corporate Debtor", which means a corporate person who owes a debt to any person.
"We are of the considered view that the corporate debtor (Religare Enterprises) as alleged does not come within the meaning of corporate person and therefore, we are unable to accept the prayer of the applicant to initiate the CIRP against the Corporate Debtor," said NCLT.
Ligare Aviation has approached NCLT against Religare Enterprises, which is a corporate guarantor of the principal borrower Auriga Marketing Services, which had defaulted to make a payment of Rs 35.55 crore.
Along with 14.25 per cent interest, the amount totalled to Rs 74.20 crore as on January 27, 2023.
However, Religare Enterprises contended before NCLT during the proceedings that it is a financial service provider and is excluded from the definition of a corporate person of IBC. Hence insolvency proceedings cannot be initiated against it.
To support its contention, counsel representing Religare Enterprises had placed the Certificate of Registration, granted to it by the Reserve Bank of India the status of "Non-Banking Financial Institution".
The counsel further stated that RBI alone is entitled to initiate CIRP (Corporate Insolvency Resolution Proceedings) against all NBFCs that have an asset size of more than Rs 500 crore and no other entity/company is legally or statutorily competent to institute any petition against NBFCs.
This was opposed by Ligare Aviation contending that Religare was a Core Investment Company (CIC), not an NBFC. The annual report of Religare shows that its status changed in the year 2014 from NBFC to Core Investment Company.
However, rejecting it NCLT said it was of the considered view that Religare was not a corporate person and it can not accept the prayer.
The NCLT also said: "We make it clear that the dismissal of the petition is not on merit, but only because the section 7 application is not maintainable against the corporate debtor. This order shall, therefore, not prejudice the right of the financial creditor to initiate appropriate steps under any other law and before the appropriate forum."