National Society Appeals Tribunal | NCLA | Securities Brokerage Company | Financial Service Provider | IBC


The National Company Appellate Tribunal (NCLAT) in New Delhi has recently agreed to consider a serious question of law, namely whether a securities brokerage firm is to be regarded as a financial services provider under section 3(16) of the Insolvency and Bankruptcy Code, 2016 and is to be kept out of the Code of Insolvency and Bankruptcy, 2016 (“IBC”)?

The development came as the NCLAT suspended the formation of the creditors’ committee of the debtor company, namely Simandhar Broking Ltd., if it was not yet constituted, until the next hearing date, in an appeal filed by its director suspended under s. 61 of the IBC challenging the order of the NCLT, Ahmadabad Bench.

An IBC Section 7 petition has been filed with NCLT, Ahmedabad by the client of the stockbroker against his trading in shares in the Futures and Options segment of the NSE ( National Stock Exchange).

It was therefore the case of the Appellant that NCLT, Ahmedabad had taken a “contrary opinion” to prior judgments rendered by the NCLAT and other NCLT panels.

On appeal, the suspended administrator had argued that the corporate debtor is a provider of financial services, therefore, in view of section 3(7) of the IBC and in view of this, it does not come within in the definition of body corporate and the alleged debt is not a financial debt within the meaning of section 5(8) of the IBC.

The solicitor appearing on behalf of the appellant had relied on NCLT, Hyderabad Bench judgment rendered in the case Praveen Kumar Mundra v CIL Securities Ltd in which the Stoking Broking Company was found to be a financial services provider because it is regulated by SEBI, deals in financial products, i.e. securities, and provides financial services under Section 3(16) of the IBC. Therefore, it should not be considered as the body corporate as stated in Section 3(7) of the IBC. Thus, the insolvency proceedings of a securities brokerage firm do not fall within the jurisdiction of the BAC.

It was also argued that Respondent No. 1 (Financial Creditor) deleted the material fact that the NSE Investor Grievance Committee rejected his claim and that the admissible claim of the Financial Creditors is VOID.

While sending notice to the defendants, the bench headed by Judge Jarat Kumar Jain (Judicial Member) granted two weeks time to file its response in the case.

“Defendant #1 requests and is granted two weeks to file a Reply Affidavit. The Reply, if any, may be filed one week later. It is ordered that if the CoC has not been constituted, it be suspended until the next hearing date.” the bench ordered.


For the Appellant – Mr. Krishnendu Datta, Senior Counsel, Mr. Hemant Sethi, Counsel to Attorneys Gaurav H Sethi and Rahul Gupta.

For Respondent No.1-M. Abhishek Swaroop, Mr. Kiran Shah and Noman Singh Bagga Advocates.

Title: Nitin Pannalal Shah (suspended director of Simandar Broking Ltd.) c. Vipul H Raja & Ors.

Click here to read the order


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