In the case of Housing Development and Finance Corporation Limited v. RHC Holding Private Limited, the National Company Appellate Law Tribunal ("NCLAT") found that "non-banking financial institutions" (NBFCs) are exempt from the provisions of the Insolvency and Bankruptcy Code, 2016 ("Code"). Housing Development and Finance Corporation Limited (hereinafter referred to as the "Appellant") has appealed the December 6, 2018 order of the Principal Bench of the National Company Law Tribunal (hereinafter referred to as "NCLT"), which dismissed the appellant's insolvency claim against respondent RHC Holding Private Limited (hereinafter referred to as "Respondent") on the grounds that Respondent is an NBFC and as such is exempt from the provisions of the Code. The Appellant filed a claim with the NCLT to recover INR 41 crores owed to the Respondent.
In the instant case titled Housing Development and Finance Corporation Limited v. RHC Holding Private Limited the issue raised for clarification before the NCLAT was:
Whether the Respondent, an NBFC, was exempt from the Code's application?
With regard to this issue, The NCLAT noted that when the term of "financial service" is read in conjunction with the definition of "financial service provider," it is made clear that "financial service providers" are not required to accept deposits. It was further ruled that the nine actions listed in sub-clauses (a) to I of Section 3(16) of the Code do not constitute the definition of "financial services" as stated in that section. The subclauses are all-inclusive, therefore other services may be provided that fall within the category of "financial services." Furthermore, the RBI's registration certificate was used to start a business providing "non-banking financial services," with the exception of accepting public deposits. The NCLAT also referred to Section 45-I of the Reserve Bank of India Act, 1934 which defines what an NBFC is. The NCLT's decision to dismiss the appellant's argument was supported by the two-person bench, which was presided over by Chairman Justice S. J. Mukhopadhaya. The NCLAT ruled that the Appellant's petition lacked merit and further said that because the Respondent falls under the jurisdiction of the RBI, the RBI should be approached for relief rather than the bankruptcy court.
The NCLAT categorically stated that,
“o 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 grounds the Adjudicating Authority cannot admit or reject an application under Section 7 or 9 of the I&B Code. If the terms and conditions are imposed by the Reserve Bank of India or there is a violation of any of the provisions of the Reserve Bank of India, one may bring the same to the notice of the Reserve Bank of India and not before the Adjudicating Authority. Company Appeal (AT)(Insolvency) No.26 of 2019.”