Is stock broking company a financial service provider under IBC’? NCLAT to examine.3 min read


The National Company Appellate Tribunal, New India passed a new order recently which put on hold the formation of Committee of Creditors of Simandhar Broking Limited (corporate debtor), if not constituted yet, till the next date of hearing, in an appeal filed by the company’s Suspended Director under Sec. 61 of the Insolvency and Bankruptcy Code, challenging the order of National Company Law Tribunal, Ahmedabad. It will now ponder upon the question of – whether a stock broking company will be considered as a Financial Service Provider as per Section 3(16) of the Insolvency and Bankruptcy Code, 2016 and as a result, should be kept out of the purview of the same?

 The appeal was filed against the impugned order passed by the NCLT, 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 (National Stock Exchange)

Appellant plead that NCLT, Ahmedabad has taken a contrary view to the earlier precedents and various decided judgements given by other benches of NCLT and NCLAT. The Counsels for the Appellant relied on the NCLT, Hyderabad Bench judgement passed in the matter of Praveen Kumar Mundra V. CIL Securities Ltd, where it was held that the Stoking Broking Company is a financial service provider as it is regulated by SEBI and it deals with financial products i.e., securities and imparts financial services. Hence, it should not be considered as the Corporate Person as stated under Section 3(7) of the IBC. Therefore, the insolvency proceedings of a stock broking company are not covered under the purview of IBC.

The bench of NCLAT in this matter has issued notice to the Respondents and granted two weeks of time to file the reply. Another one week will be granted to the appellant to file their Rejoinder, if any. The counsels appearing for the appellant submitted that the claim of Respondent 1 (Client of the Stock Broker) cannot be considered as financial debt under Section 5(8). It was also submitted that the Respondent No. 1 (Financial Creditor) has suppressed the vital fact that the investor grievance resolution panel of NSE has rejected his claim and the admissible claim of the Financial Creditors is NIL.

In the appeal filed before the NCLAT, it has also been submitted by the appellant that all the sale of securities held by the client of stock broker in the Future & Options Segment of Margin Trading has been undertaken as per the KYC Form and the Agreement of Trade executed between the client and the broker. Terms of Agreement of Trade sufficiently able the broker to sell securities i.e., the margin of the client, in case of any non-payment of carry forward charges arising from the losses of the client including interest or brokerages, making them liable to be paid by the client towards the broker. Therefore, any sale of such margin securities against the constant non-payment of carry forward charges including interest and losses caused by the respondent to the appellant, cannot be admitted as financial debt under the IBC.

READ ALSO: “Cannot issue mandamus directing all COVID victims to be compensated”- Madras HC