NCLT dismisses plea seeking insolvency proceedings against Religare

The National Company Law Tribunal (NCLT) on Tuesday dismissed a petition to commence bankruptcy proceedings against Religare Enterprises Ltd noting that it was a financial services provider and did not fall within the scope of the Insolvency and Bankruptcy Act (IBC).

A major tribunal chaired by NCLT President Judges Ramalingam Sudhakar and Atul Chaturvedi held that the petition by Ligare Aviation Ltd v. Religare Enterprises was “unmaintainable” and did not fall under the definition of “corporate debtor”, meaning that a legal person owes a debt to anyone.

“We are of the considered view that a debtor to the company (Religare Enterprises) as alleged does not come within the meaning of a legal person and, therefore, we cannot accept an applicant’s claim to initiate a CIRP against the debtor’s company,” the NCLT said.

Ligare Aviation has approached NCLT against Religare Enterprises, a guarantor of the principal borrower Auriga Marketing Services, which defaulted on a payment of Rs 35.55 crore.

Together with interest at 14.25 per cent, the total amount was Rs. 74.20 crore on 27th January 2023.

However, Religare Enterprises argued before the NCLT during the proceedings that it is a financial service provider and is exempt from the definition of a legal person for an IBC. Hence, insolvency proceedings cannot be commenced against her.

In support of her claim, the lawyer representing Religare Enterprises has drawn up the Certificate of Registration, which has been granted by the Reserve Bank of India the status of a ‘non-bank financial institution’.

The lawyer further stated that RBI alone is authorized to initiate CIRP (Company Insolvency Resolution Proceedings) against all NBFCs with assets size above Rs 500 Crore and no other entity/company is legally or legally qualified to file any petition against NBFCs.

Ligare Aviation disputed this claiming that Religare was a primary investment company (CIC), not NBFC. Religare’s annual report shows that in 2014 its status changed from NBFC to Core Investment Company.

However, the NCLT refused that it said it was from the considered viewpoint that Religare was not a legal person and could not accept the prayer.

The NCLT also said: “We have made it clear that the petition is dismissed not on merit, but only because the Section 7 application is not maintainable against the debtor’s corporation. Thus, this order must not prejudice the creditor’s right to initiate appropriate steps under any other law and before the appropriate forum.”