Is Stock Broking Company is a Financial Service Provider Under IBC? | NCLAT to Examine


The National Company Appellate Tribunal (NCLAT), New Delhi has recently agreed to examine a serious question of law i.e. whether a stock broking company should be considered as a Financial Service Provider under Section 3(16) of the Insolvency and Bankruptcy Code, 2016 and should be kept out of the purview of the Insolvency and Bankruptcy Code, 2016 (“IBC”)?

The development came while the NCLAT stayed the Committee of Creditor’s formation of Corporate Debtor i.e. Simandhar Broking Ltd. if not constituted yet, till the next date of hearing, in an appeal filed by its Suspended Director under sec. 61 of the IBC challenging the order of NCLT, Ahmadabad Bench.

A petition under Section 7 of the IBC was filed in NCLT, Ahmedabad by the client of the Stock Broker, against his trading of shares in the Futures & Options Segment of the NSE (National Stock Exchange).

It was thus, the case of the Appellant that NCLT, Ahmedabad had taken a “contrary view” to the earlier decided judgments rendered by the NCLAT and other benches of the NCLT.

In appeal, the Suspended Director had submitted that the Corporate Debtor is a Financial Service Provider, therefore, given Section 3 (7) of the IBC and given this, it does not come within the definition of Corporate Person and the alleged debt is not Financial Debt within the meaning of Section 5 (8) of the IBC.

Counsel appearing on behalf of the Appellant had placed reliance on NCLT, Hyderabad Bench judgment passed in the matter Praveen Kumar Mundra v. CIL Securities Ltd wherein it was held that the Stoking Broking Company is a financial service provider as it is regulated by SEBI, it deals with financial products i.e. securities and imparts financial services under Section 3(16) of the IBC.

Hence, it should not be considered as the Corporate Person as stated under Section 3(7) of the IBC. Thus, the insolvency proceedings of a stock broking company are not covered under the purview of IBC.

It was also submitted that Respondent No. 1 (Financial Creditor) has suppressed the vital fact that the investor grievance resolution panel of NSE has rejected his claim and the admissible claim of the Financial Creditors is NIL. While issuing notice to the Respondents, the bench headed by the grant of two weeks to file their reply in the matter.

“The Respondent No. 1 seeks and is granted two weeks to file Reply Affidavit. Rejoinder, if any, may be filed one week thereafter. It is ordered that if the CoC has not been constituted it be put on hold till next date of hearing.” the bench ordered.

For more updates on the verdict, do follow the ITAT Orders blog.

Priya kejriwal
Priya kejriwal
Intern at Rasesh Shah & Co | Ambitious | CA aspirant

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