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Whether Stock Broking Company Comes under category of FSP in the view of IBC: NCLAT

Stockbroking company should be considered as a Financial Service Provider under Section 3(16) of the I&B Code and should be kept out of the purview of the said Code. The order passed by the NCLAT New Delhi (principle bench), in its decision in   Nitin Pannalal Shah v. Vipul H Raja & Ors. (Company Appeal (AT)(Ins) No. 379 of 2021 Date 31-Ma-21)   by Hon’ble Shri  Justice Jarat Kumar Jain

The facts of the case was such that the appeal was filed by the suspended director of the Corporate Debtor against the impugned order passed by the National Company Law Tribunal, Ahmedabad Bench in the petition filed under Section 7 of the IBC by the client of the Stock Broker, against his trading of shares in the Futures & Options Segment of the NSE.

The Counsel for Appellant has presented that the Adjudicating Authority has taken such opposite view to the prior points of reference and catena of decisions given by different seats of NCLT and NCLAT. The Counsels for the Appellant depended on the NCLT, Hyderabad Bench judgment passed in the matter Praveen Kumar Mundra V. CIL Securities Ltd, where it was held that the Stoking Broking Company is a financial specialist organization as it is managed by SEBI, it manages financial goods for example protections and bestows financial administrations under Section 3(16) of the IBC. Henceforth, it ought not be considered as the Corporate Person as expressed under Section 3(7) of the IBC. In this way, the insolvency procedures of a stock broking company are not covered under the domain of IBC.

The Counsels for Appellant further presented that the case of Respondent/Financial Creditor can’t be considered as financial obligation under Section 5(8). It was additionally presented that the Respondent/Financial Creditor has stifled the indispensable certainty that the financial backer complaint goal board of NSE has dismissed his case and the acceptable case of the Financial Creditors is NIL.

It is likewise put together by the Appellant that all the offer of protections held by the customer of stock intermediary in the Future and Options Segment of Margin Trading has been attempted according to the KYC Form and the Agreement of Trade executed between the customer and the specialist. Terms of Agreement of Trade, adequately permits intermediary to deal protections for example Edge of the customer, in the event of any non-installment of convey forward charges emerging from the misfortunes of customer including interest or financiers, at risk to be paid by customer towards the representative. In this manner, any offer of such edge protections against the steady non-installment of convey forward charges including interest and misfortunes brought about by the Respondent/Financial Creditor to the Appellant, can’t be conceded as financial obligation under the IBC.

The reason to exclude Financial Service providers from IBC is that the Financial Service providers as under IBC include various participants, which facilitate smooth functioning and play a key role in the economy. The rationale behind excluding FSPs is to curb the impact of the failure of “Systematically critical” financial institutions causing a financial crisis, which would lead to a Domino effect in the economy. These institutions are colloquially referred to as Too big to fail.

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