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Deciphering Financial Debt: NCLAT Affirms Non-Applicability of IBC to Financial Service Providers


The National Company Law Appellate Tribunal, New Delhi (‘NCLAT’) in the case of Globe Capital Market Ltd. v. Narayan Securities Ltd.[i] dismissed an appeal, establishing that applications for initiating corporate insolvency resolution process (‘CIRP’) under the Insolvency and Bankruptcy Code, 2016 (‘IBC’) cannot be filed against financial service providers (‘FSPs’). This decision reinforces the exclusion of FSPs from the definition of a corporate person (‘CP’) under s. 3(7) of the IBC.

Brief Facts

  • This case originated from the Globe Capital Market Limited (‘Applicant’) filing an application under s. 7 of the IBC read with r. 4 of the IB (Application to Adjudicating Authority) Rules, 2016 to initiate CIRP against M/s Narayan Securities Ltd. (‘Respondent’).

  • The Respondent, a company incorporated in 1989 was a clearing member of the National Securities Clearing Corporation Ltd. authorized to handle the clearing and settlement of deals/trades on behalf of trading members of the National Stock Exchange of India Ltd. (‘NSEIL’), thereby operating within the currency derivatives segment. A trading member-clearing member agreement was executed between the Respondent and the Applicant.

  • The Applicant and the Respondent were involved in the derivative transaction wherein the Applicant claimed a debt of Rs. 13,08,04,389.69/- including interest from the Respondent, relying on a default date of 23.12.2021.

  • It was examined whether the debt claimed would come within the ambit of financial debt under s. 5(8)(g) of the IBC while relying upon the decision in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy & Anr.[ii], wherein the Hon’ble Supreme Court held that a judgement or a decree for monetary compensation in favour of the financial creditor would give a new legal basis to the creditor to initiate CIRP under s. 7 of the IBC. However, the National Company Law Tribunal (‘NCLT’) noted that the claim based on the arbitral award dated 24.09.2021 in this case, did not fall within the ambit of financial debt as it was not for derivative transactions but for fees, charges, and losses. The application for initiating CIRP in this case was held to be not maintainable by the NCLT on the ground that the transaction did not have the commercial effect of borrowing.

  • The NCLT held that the Respondent was engaged in dealing with financial products under s. 3(15) of the IBC and an application under ss. 7, 9 or 10 of the IBC can only be filed against a corporate debtor defined under s. 3(8) of the IBC as a corporate entity owing a debt. The NCLT listed 3 necessary ingredients for a ‘financial debt’, including debt with interest, disbursement and time value of money. Further, it was observed that the definition of a CP under s. 3(7) of the IBC does not encompass a financial service as per s. 3(16) of the IBC or FSP as defined under s. 3(17) of the IBC and financial service regulator under s. 3(18) of the IBC. Furthermore, the NCLT held that the Respondent being registered with the Securities and Exchange Board of India Act, 1992 (‘SEBI’) is subject to regulations, control, and supervision of the SEBI.

  • The Applicant being aggrieved by the NCLT order filed an appeal before the NCLAT.


  • The NCLAT dismissed the appeal filed by the Applicant and upheld the NCLT’s decision. The NCLAT observed that the application for initiating CIRP under s. 7 of the IBC against FSPs was not maintainable as the Respondent was an FSP as per s. 3(17) of the IBC and thus, did not fall under the ambit of a CP as defined under s. 3(7) of the IBC. However, liberty was granted to the Applicant to explore other available remedies against the Respondent.


This judgment by the NCLAT has significant implications for similar cases and sheds light on the application of the provisions of the IBC on FSPs. Firstly, it clarifies that the rejection of the application by the NCLT was not erroneous as CIRP cannot be initiated against FSPs as if they were CPs. Secondly, the decision underscores the notion that entities providing financial services as defined under s. 3(16) of the IBC, are indeed considered FSPs under s. 3(17) of the IBC. Therefore, they are not subject to the provisions applicable to the CP in terms of insolvency proceedings.

This conclusion stems from the understanding that FSPs fall outside the scope of the definition of a CP under s. 3(7) of the IBC, thereby precluding the initiation of CIRP against them in the same manner.

This judgment reinforces the understanding that stockbroking companies, being categorized as FSPs, do not fulfil the criteria for being considered as a CP under the IBC. It also highlights the need for clarity in determining the nature of claims and transactions to establish whether they fall within the scope of financial debt or not. This interpretation serves as a guiding precedent for similar cases involving FSPs, offering clarity on the applicability of the IBC in such scenarios.

End Notes:

[i] 2024 SCC OnLine NCLAT 122.

[ii] (2021) 10 SCC 330: 2021 SCC OnLine SC 543.

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

To read more on FSPs in relation to the IBC, visit our piece titled 'IBBI Circular on Voluntary Liquidation Process for Financial Service Providers: Compliance & Reporting Guidelines' by Ms. Pratima Ajmera.


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