NCLT admits ₹1.68 crore MUDRA insolvency plea, ruling RBI licence cancellation removes financial service provider exclusion under IBC.
Cancellation of RBI Licence Removes FSP Exclusion in CIRP: NCLT Rules
The National Company Law Tribunal (NCLT) admitted a CIRP application by MUDRA against a microfinance institution with a defaulted claim of ₹1.68 crore, holding that the cancellation of its RBI registration effectively removed its shield as a Financial Service Provider (FSP) under Section 227 of the Insolvency and Bankruptcy Code (IBC).
Previously, FSPs were excluded from insolvency scrutiny due to regulatory oversight. However, the tribunal found that post-cancellation, the entity no longer qualified for exclusion and met the financial default threshold of ₹1 crore.
"The protection under Section 227 is conditional upon the continuance of valid regulatory registration,"the NCLT observed, stressing that insolvency exclusion cannot benefit defunct regulated entities.
This ruling sets a precedent for initiating CIRP against deregistered NBFCs and microfinance organizations. Practitioners should monitor regulatory status changes as they may open pathways to insolvency proceedings previously barred under sectoral exclusions.
Citations
- Insolvency and Bankruptcy Code, 2016, Section 227
- RBI Act, 1934, Section 45(2)
