Housing Development Finance ... vs Rhc Holding Pvt. Ltd

(Arising out of Order dated 6.12.2018 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in Company Petition No.(IB)-738(PB)/2018).

In the matter of: Housing Development Finance Corporation Ltd, Ramon House, HT Parekh Marg, 169 Backbay Reclamation,Churchgate, Mumbai 400020

Also at: The Capital Court, Olof Palme Marg, New Delhi-110067 Appellant

Versus

RHC Holding Private Ltd, Prius Platinum, Ground Floor, D3, District Center, Saket, New Delhi-110017

Also at

RHC Holding Pvt Ltd, G-16, Marina Arcade, Connaught Circus, New Delhi-110001 Respondent

Present: Mr. Amit Singh Chadha, Senior Advocate with Ms Amrita Singh and Ms Srishti Govil, Advocates for Appellant.

Mr. Aditya Dewan, Advocate for Respondent.

Company Appeal (AT)(Insolvency) No.26 of 2019 2

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

The appellant, Housing Development Finance Corporation Ltd (HDFC

Ltd), financial creditor, filed an application under Section 7 of the Insolvency

and Bankruptcy Code, 2016 (I&B Code) against M/s RHC Holding Pvt Ltd

(Corporate Debtor) which has been rejected by the Adjudicating Authority

(National Company Law Tribunal), Principal Bench, New Delhi by impugned

order dated 6.12.2018 giving rise to the present appeal.

2. The Adjudicating Authority held that the Respondent Company being a

non-banking financial institution rendering 'financial service' is out of the

purview of the I&B Code.

3. Learned counsel appearing on behalf of the appellant submitted that

the Respondent is not a 'financial service provider'. According to the appellant

the intent and the purpose of the legislature is to specifically carve out a set

of institutions that provide set of identified financial services. The exclusion

cannot be beyond what has been contemplated by the I&B Code. The I&B

Code is applicable to all entities other than those which are specifically

engaged in business of providing "financial services" listed in Section 3(16).

Reliance has been placed on the definition of the 'financial service provider'

covered under Section 3(17) to suggest that it must be engaged in the

business of providing financial service.

4. Learned counsel appearing for the Respondent submitted that the

Adjudicating Authority has rightly rejected the application of the appellant

since the Respondent is a 'financial service provider' and is excluded from the

Company Appeal (AT)(Insolvency) No.26 of 2019 3

definition of Corporate Person as per Section 3(7) of I&B Code. The reliance

has also been placed on this Appellate Tribunal's decision Randhiraj Thakur

Vs M/s Jindal Saxena Financial Services, Company Appeal (AT)(Insolvency)

No.32 and 50 of 2018 wherein this Appellate Tribunal held that the

application filed by financial creditor under Section 7 of the I&B Code is not

maintainable against the company which has been granted a certificate of

Registration under the Reserve Bank of India Act, 1934 giving status of a

"Non-Banking Financial Institution."

5. Learned counsel appearing on behalf of the Appellant referred to reply

filed by the respondent wherein it has pleaded:

"It is an admitted position that the Respondent is a holding

company, which invests in shares, bonds, debentures, debts or

loans in group companies and gives guarantees on behalf of

group companies. Being a holding company, the Respondent is

a separate entity altogether and hence the services being

provided by the Respondent constitutes offering and managing

assets consisting of financial products belonging to another

person."

Referring the aforesaid pleadings, it was submitted that the respondent itself

has admitted that it is not a financial service provider.

6. The Adjudicating Authority has noticed the Certificate of Registration

issued by the Reserve Bank of India, Department of Non-Banking

Supervision, New Delhi Regional Office in exercise of the powers conferred on

Company Appeal (AT)(Insolvency) No.26 of 2019 4

the Reserve Bank of India by Section 45 IA of the Reserve Bank of India Act,

1934, which is as follows:-

"RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

NEW DELHI REGIONAL OFFICE

CERTIFICATE OF REGISTRATION

(Not valid for accepting Public Deposits)

No.N-14.03142

In exercise of the powers conferred on the Reserve Bank of India by Section

45 IA of the Reserve Bank of India Act, 1934.

RHC HOLDING PRIVATE LIMITED

(FORMERLY SOLARIES FINANCE PRIVATE LIMITED)

Is hereby granted

Certificate of Registration

To commence/carry on the business of non-banking financial without

accepting public deposits subject to the conditions given on the reverse.

Given under my hand at this 3rd day of April, Two thousand Eight.

New Delhi

Sd/-

General Manager"

A bare perusal of the aforesaid Certificate issued by the Reserve Bank of India

clearly shows that the Respondent company has been registered as a 'non-

banking financial company' but has not been allowed to accept public deposit.

7. Section 3(8) defines 'corporate debtor' means a corporate person who

Company Appeal (AT)(Insolvency) No.26 of 2019 5

owes a debt to any person. Section 3(7) defines 'corporate person' which

means:-

Section 3-Definitions-In this Code, unless the context

otherwise requires,-

"(7) "corporate person" means a company as defined in clause

(20) of Section 2 of the Companies Act, 2013 (18 of 2013), a

limited liability partnership, as defined in clause (n) of sub-

section (1) of section 2 of the Limited Liability Partnership Act,

2008 (6 of 2009), or any other person incorporated with limited

liability under any law for the time being in force but shall not

include any financial service provider."

From the aforesaid provisions it is clear that 'corporate person' donot include

any Financial Service Provider.

8. "Financial Service providers" is defined in Section 3(17) means:-

Section 3-Definitions- In this Code, unless the context

otherwise requires,-

"(17) "financial service provider" means a person

engaged in the business of providing financial services in

terms of authorisation issued or registration granted by

a financial sector regulator;"

9. "Financial service" has been defined under Section 3(16) as follows:-

"Section 3-Definitions- In this Code, unless the context

otherwise requires,-

Company Appeal (AT)(Insolvency) No.26 of 2019 6

(16) financial service" includes any of the following

services, namely-

(a) Accepting of deposits;

(b) Safeguarding and administering assets consisting of

financial products, belonging to another person, or

agreeing to do so;

(c) Effecting contracts of insurance;

(d) Offering, managing or agreeing to manage assets

consisting of financial products belonging to another

person;

(e) Rendering or agreeing, for consideration, to render

advice on or soliciting for the purposes of-

(i) Buying, selling or subscribing to, a

financial product;

(ii) Availing a financial service; or

(iii) Exercising any right associated with a

financial product or financial service;

(f) Establishing or operating an investment scheme;

(g) Maintaining or transferring records of ownership of a

financial product;

(h) Underwriting the issuance or subscription of a

financial product; or

(i) Selling, providing, or issuing stored value or payment

instruments or providing payment services;"

Company Appeal (AT)(Insolvency) No.26 of 2019 7

10. The definition of "financial service" if read with definition of "financial

service provider", it is clear that it is not necessary that the "financial service

providers" must accept the deposits. If any of the activity as defined in Section

3(16) of the I&B Code such as safeguarding and administering assets

consisting of financial products belonging to another person, or agreeing to

do so; effecting contracts of insurance; Offering, managing or agreeing to

manage assets consisting of financial products belonging to another person;

rendering or agreeing, for consideration, to render advice on or soliciting for

the purposes of- buying, selling or subscribing to, a financial product; availing

a financial service etc., they also come within the definition of "financial

service provider".

11. Learned counsel appearing on behalf of the appellant submitted that

each of the 9 financial services as shown in Section 3(16) shows that the

Respondent is not rendering any of the aforesaid services; the details of the

chart given by counsel for appellant is as follows:

Clause of Section Examples of Whether 3(16) financial services applicable to covered under this the clause Respondent a. Accepting of NBFCs accepting NO deposits deposits in terms of authorisation from RBI b. Safeguarding and Debenture Trustees No administering assets consisting of financial products, belonging to another person, or agreeing to do so

Company Appeal (AT)(Insolvency) No.26 of 2019 8

c. Effecting Insurance No contracts of Companies as per insurance IRDA d. Offering, Asset Management No managing or Companies and agreeing to Depository manage assets Participants consisting of financial products belonging to another person e. Rendering or Stock Brokers, SEBI No agreeing, for registered Merchant consideration, to Bankers, SEBI render advice on registered Venture or soliciting for Capitalists the purposes of

(i) Buying, selling or subscribing to a financial product;

(ii) Availing a financial service, or (iii) Exercising any right associated with financial product or financial services; f. Establishing or SEBI approved No operating an investment schemes investment such as REIT scheme g. Maintaining or Registrar and No transferring Transfer Agents records or ownership of a financial product h. Underwriting the Underwriters No issuance or subscription of a financial product

Company Appeal (AT)(Insolvency) No.26 of 2019 9

i. Selling providing Payment Banks such No. or issuing stored as PAYTM value or payment instruments or providing payment services

12. Learned counsel for the appellant further submits that the Respondent

has pleaded to claim "financial service provider" as follows:-

"It is the case of the Respondent, as pleased in paragraph 8 of

their Reply to Section 7 Petition (@Pg 398 of Appeal Paper Book)

that they are a 'financial service provider' because "That the

Respondent is primarily in the business of investment in shares,

bonds, debentures, debts or loans in group companies, money

market instruments including money market mutual funds and

giving guarantees on behalf of group companies and is hence

providing 'financial services'. The Respondent is, therefore, a

'financial service provider' and being a 'financial service

provider' cannot be termed as a 'corporate person'."

"It is an admitted position that the Respondent is a holding

company, which invests in shares, bonds, debentures, debts or

loans in group companies and gives guarantees on behalf of

group companies. Being a holding company, the Respondent is

a separate entity altogether and hence the services being

provided by the Respondent constitutes offering and managing

assets consisting of financial products belonging to another

person."

Company Appeal (AT)(Insolvency) No.26 of 2019 10

Therefore, according to appellant the Respondent is investing in shares,

bonds, debentures etc., none of them constitute providing and rendering

financial services.

13. The definition of 'financial services' as defined in Section 3(16) of I&B

Code is not limited to the 9 activities as shown at Clause (a) to (i) of Section

3(16). The aforesaid Clauses (a) to (i) are inclusive which means there are

other services means there are other services which come within the meaning

of "financial services".

14. The Registration of Certificate issue by RBI shows that it has granted

certificate to commence/carry on business of "non-banking financial

services". However, the Respondent has not been allowed to accept the public

deposit and such certificate is condition to other conditions as provided in the

back of the Certificate.

15. Chapter IIIB of The Reserve Bank of India Act, 1934 relates to

"Provisions Relating to Non-Banking Institutions Receiving Deposits and

Financial Institutions". It is not applicable to State Bank or a banking

company as defined in Section 5 of the Banking Regulation Act, 1949 or a

corresponding new bank as defined in clause (da) of Section 5 of the Act or

Regional Rural Bank or a cooperative bank or a primary agricultural credit

society or a primary credit society.

16. Section 45-I(a) defines-

"45-I Definition-In this Chapter, unless the context otherwise

requires-

Company Appeal (AT)(Insolvency) No.26 of 2019 11

(a) business of a non-banking financial institution' means

carrying on the business of a financial institution referred

to in clause (c) and includes business of a non-banking

financial company referred to in clause (f)

Xxx

17. Section 45-I(c) defines "financial institutions" means any non-banking

institution which carries on as its business or part of its business any of the

following activities-namely-

(i) the financing, whether by way of making loans or advances or

otherwise, of any activity other than its own;

(ii) the acquisition of shares, stock, bonds, debentures or securities

issued by a Government or local authority or other marketable

securities of a like nature;

(iii)Letting or delivering of any goods to a hirer under a hire-purchase

agreement as defined in Clause © of Section 2 of the Hire Purchase Act,

1972 (26 of 1972).

(iv)the carrying of any class of insurance business.

(v)managing, conducting of supervising, as foreman, agent or in any

other capacity, of chits or kuries as defined in any law which is for the

time being in force in any State, or any business, which is similar

thereto;

(vi) collecting, for any purpose or under any scheme or arrangement by

whatever name called, monies in lump sum or otherwise, by way of

Company Appeal (AT)(Insolvency) No.26 of 2019 12

subscriptions or by sale of units, or other instruments or in any other

manner and awarding prizes or gifts, whether in cash or kind, or

disbursing monies in any other way, to persons from whom monies are

collected or to any other person,

But does not include any institution, which carries on as its principal

business,-

(a) Agricultural operations; or

(aa)Industrial activity; or

(b) The purchase, or sale of any goods (other than securities) or the

providing of any services; or

(c) The purchase, construction or sale of immovable property, so,

however, that no portion of the income of the institution is derived

from the financing of purchases, constructions or sales or

immovable property by other persons.

Explanation-For the purposes of this clause, "industrial activity"

means any activity specified in sub-section (i) to (xviii) of Clause ©

of Section 2 of the Industrial Development Bank of India Act, 1964.

18. Section 45-I(f) defines 'non-banking financial company-

Section 45-I-Definition-In this chapter, unless the

context otherwise requires

(j) "non-banking" financial company" means-

(i) A financial institution which is a company;

Company Appeal (AT)(Insolvency) No.26 of 2019 13

(ii) A non-banking institution which is a company

and which has as its principal business the

receiving of deposits, under any scheme of

arrangement or in any other manner, or lending

in any manner.

(iii) Such other non-banking institution or class of

such institutions, as the Bank may, with the

previous approval of the Central Government

and by notification in the Official Gazette,

specify.

19. Therefore, it is clear that the Respondent, 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.

20. So far as the allegation that the Respondent, Non-Banking Finance

Company, is taking deposits from others in violation of conditions imposed by

the Reserve Bank of India, such issue cannot be decided by the Adjudicating

Authority while considering an Application under Section 7 or 9 of the I&B

Code. Only on such ground the Adjudicating Authority cannot admit or reject

an application under Section 7 or 9 of the I&B Code. If the terms and

conditions imposed by Reserve Bank of India or there is violation of any of the

provision of Reserve Bank of India, one may bring the same to the notice of

Reserve Bank of India and not before the Adjudicating Authority.

Company Appeal (AT)(Insolvency) No.26 of 2019 14

21. For the reasons aforesaid, we hold that the application under Section 7

of I&B Code is not maintainable. Therefore, the Adjudicating Authority rightly

rejected the application. We find no merit in the appeal, it is accordingly

dismissed. No costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S.Cheema) Member (Judicial)

Dated: 10th July, 2019 New Delhi

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Company Appeal (AT)(Insolvency) No.26 of 2019