NCLAT Rules Financial Service Providers Cannot Be Subjected to CIRP Under the IBC: Key Takeaways from Religare Finvest

Kaustav Chowdhury

Aug 14

8 min read

The National Company Law Appellate Tribunal (NCLAT), in its order in Religare Finvest Limited v. Strategic Credit Capital Private Limited (Company Appeal (AT) (Insolvency) No. 398 of 2023), dismissed a financial creditor's appeal and ruled that the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the "Code") cannot be initiated against a Financial Service Provider (FSP). A three-member bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey further clarified that the relevant date for determining whether a corporate debtor qualifies as an FSP is the date of the underlying financial transaction, not the date on which the insolvency petition is filed. This ruling carries significant implications for creditors, NBFCs, and insolvency practitioners, particularly in light of conflicting NCLAT precedent on the same issue.

Background: The Financial Service Provider Exclusion Under the IBC

Section 3(7) of the Code defines "corporate person" to include a company, a limited liability partnership, or any other person incorporated with limited liability under any law for the time being in force, but specifically excludes any financial service provider. Section 3(17) further defines a "financial service provider" as a person engaged in the business of providing financial services in terms of authorisation granted, or registration obtained, from a financial sector regulator.

This exclusion reflects a deliberate legislative design. Financial service providers, including banks, non-banking financial companies (NBFCs), insurance companies, and other regulated entities, operate under specialised regulatory frameworks involving depositor protection, systemic stability, and prudential control. Their failure can have wider economic consequences that require a separate resolution mechanism distinct from the standard CIRP available for ordinary corporate debtors.

Section 227 of the Code empowers the Central Government, in consultation with the relevant financial sector regulator, to notify categories of FSPs to which the provisions of the Code (including CIRP and liquidation) shall apply. Pursuant to this power, the Central Government issued Notification No. S.O. 4139(E) dated 18 November 2019, bringing NBFCs (including housing finance companies) with an asset size of INR 500 crore or more within the scope of the Code's insolvency and liquidation framework. However, applications for initiation of CIRP against such notified FSPs can only be filed by the relevant regulator (i.e., the Reserve Bank of India), not by individual creditors. The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (the "FSP Rules") set out the procedural framework for such proceedings.

The IBBI has also been actively reforming the CIRP regulatory framework through recent amendments, and the proposed iPIE digital platform for the insolvency ecosystem is expected to further streamline insolvency proceedings in India. The FSP exclusion, however, remains a critical jurisdictional threshold that continues to generate litigation.

Facts of the Case

Religare Finvest Limited (the financial creditor) filed a Section 7 application before the National Company Law Tribunal (NCLT) seeking initiation of CIRP against Strategic Credit Capital Private Limited (the corporate debtor). The corporate debtor raised a preliminary objection, contending that it was a financial service provider by virtue of its NBFC registration with the Reserve Bank of India, and was therefore excluded from the definition of "corporate person" under Section 3(7) of the Code.

A critical factual element in the case was that the corporate debtor's NBFC registration had been cancelled by the RBI prior to the filing of the Section 7 petition. The question, therefore, was whether the corporate debtor's FSP status should be assessed as of the date of the underlying financial transaction (when it held a valid NBFC registration) or as of the date of filing of the insolvency petition (when its registration had already been cancelled). The NCLT rejected the Section 7 application, and Religare Finvest appealed to the NCLAT.

Key Holdings of the NCLAT

1. FSPs Cannot Be Subjected to CIRP Under Section 7

The NCLAT upheld the NCLT's order and ruled that CIRP proceedings under Section 7 of the Code cannot be initiated by a financial creditor against a corporate debtor that qualifies as a financial service provider. The Tribunal reaffirmed the statutory exclusion under Section 3(7) and held that individual creditors do not have standing to file insolvency petitions against FSPs. The only route available for initiating CIRP against a notified category of FSPs is through the appropriate regulator under Section 227, read with the FSP Rules.

This holding is consistent with the settled position that Parliament intended to subject FSPs to a separate and more controlled insolvency regime, under regulatory supervision, rather than the creditor-driven CIRP mechanism that applies to ordinary corporate debtors.

2. Relevant Date: Date of Transaction, Not Date of Filing

The three-member bench ruled that the relevant date for determining whether a corporate debtor is an FSP is the date of the underlying financial transaction, not the date on which the Section 7 application is filed. Since the corporate debtor held a valid NBFC registration at the time the financial transaction was entered into, the Tribunal treated it as an FSP for the purposes of the insolvency proceedings, notwithstanding the subsequent cancellation of its registration by the RBI.

This aspect of the ruling is significant because it effectively means that an entity that was an NBFC at the time of lending may continue to enjoy FSP protection in insolvency proceedings even if its NBFC registration has since been cancelled or surrendered. This interpretation, however, stands in tension with other NCLAT decisions on the same question, as discussed below.

The Conflicting Precedent: Equitas Small Finance Bank v. Jumbo Finvest

The Religare Finvest ruling is notable for the fact that it did not consider an earlier NCLAT decision in Equitas Small Finance Bank Limited v. Jumbo Finvest (India) Limited (Company Appeal (AT) (Insolvency) No. 1771 of 2025). In that case, a two-member bench had held that the relevant date for determining FSP status is the date of filing of the Section 7 petition, not the date of the transaction. The Equitas bench held that RBI's prohibition on fresh lending and access to public funds did not divest Jumbo Finvest of its NBFC character, since its certificate of registration had not been cancelled. On the facts of that case, Jumbo Finvest remained an FSP as of the filing date, and CIRP was accordingly rejected.

The critical point is this: if the Equitas "date of filing" principle were applied to the facts of the Religare case, the result would have been different. Since Strategic Credit Capital's NBFC registration had been cancelled before the filing of the insolvency petition, it would no longer qualify as an FSP on the filing date, and the Section 7 application would have been maintainable. The fact that the larger three-member bench in Religare Finvest did not address or distinguish the earlier two-member bench ruling creates a significant precedential ambiguity.

The Ankush Saluja Ruling: Cancelled NBFC Registration Removes FSP Protection

Adding further complexity to this jurisprudential landscape is the NCLAT's decision dated 21 January 2026 in Ankush Saluja v. Urmila Goyal and Anr. (CA (AT) (Ins) No. 1560 of 2025). In that case, Ms. Urmila Goyal had filed a Section 7 application against Sharnarthi Finance Limited for initiation of CIRP, alleging default on loans of approximately INR 6.78 crore advanced in 2016. The Section 7 application was admitted by the NCLT. In appeal, a member of the suspended board of the corporate debtor argued that the entity had been an NBFC when the loans were disbursed and therefore continued to enjoy immunity from insolvency proceedings under Section 3(7).

The NCLAT rejected this contention. The Tribunal held that once the Reserve Bank of India cancels an NBFC's certificate of registration, the corporate debtor ceases to be a financial service provider. Consequently, the exclusion under Section 3(7) no longer applies, and the entity becomes amenable to CIRP under Section 7. The key reasoning was as follows:

An NBFC is excluded from the CIRP framework only so long as it continues to hold a valid registration from the RBI. Section 3(17) makes this clear by defining an FSP as a person providing financial services "in terms of authorisation granted, or registration obtained" from a regulator.
The relevant date for assessing FSP status is the date of filing of the Section 7 application. Whether the corporate debtor was an NBFC when the loan was disbursed is immaterial; what matters is whether it held a valid NBFC registration when insolvency was invoked.
The FSP exclusion is not a lifelong privilege. It exists only while the entity's regulatory authorisation survives. When the registration ends, ordinary insolvency law applies.

The Ankush Saluja ruling thus adopts the "date of filing" test for FSP status, consistent with the Equitas approach but in direct contrast with the Religare Finvest ruling that favours the "date of transaction" test. The coexistence of these conflicting decisions creates an unresolved conflict at the NCLAT level. Until a larger bench or the Supreme Court settles this question, the determination of the relevant date for FSP status will remain a contentious preliminary issue in insolvency proceedings involving current or former NBFCs.

Practical Implications

Creditors initiating CIRP: Financial creditors seeking to initiate CIRP against entities that were formerly registered as NBFCs should carefully assess the corporate debtor's regulatory status on both the date of the transaction and the date of filing of the petition. The outcome may depend on which line of NCLAT precedent the adjudicating authority follows.
Corporate debtors relying on FSP immunity: Entities invoking the FSP exclusion as a jurisdictional defence should be aware that this protection is not absolute. The Ankush Saluja ruling makes clear that cancellation or surrender of NBFC registration strips the entity of its FSP status and opens it to standard CIRP proceedings.
Insolvency practitioners: IPs advising creditors or debtors in matters involving FSP status should flag the existing precedential conflict and advise clients on the risk of differing outcomes depending on the bench.
Regulatory coordination: The ruling reinforces the importance of coordination between the RBI and the NCLT/NCLAT framework. Where the RBI has cancelled an entity's registration, the insolvency tribunal's determination of FSP status should, in principle, align with the regulator's assessment of the entity's current regulatory standing.

Action Items for Creditors, Debtors, and Practitioners

Conduct a regulatory status check before filing: Before filing a Section 7 application against any entity with a current or former NBFC connection, verify the entity's registration status with the RBI as of both the transaction date and the filing date. This dual verification is essential given the conflicting precedent.
Plead on both dates: In light of the conflicting NCLAT rulings, creditors should present arguments on both the date of transaction and the date of filing, addressing the Religare Finvest line of authority as well as the Ankush Saluja and Equitas decisions.
Monitor for Supreme Court resolution: The divergence between these NCLAT rulings makes it likely that the issue will eventually be referred to a larger bench or the Supreme Court. Practitioners should track any pending appeals or reference proceedings on this question.
Review NBFC-related exposures: Creditors holding claims against entities whose NBFC registrations have been cancelled should re-evaluate their enforcement strategies. The Ankush Saluja ruling may open the door to CIRP that was previously considered unavailable under the FSP exclusion.

Creditors and practitioners should also stay updated on related regulatory developments, including the RBI's restructured framework for FEMA Authorised Persons, which may affect the regulatory classification of certain financial entities for IBC purposes.

Conclusion

The NCLAT's ruling in Religare Finvest v. Strategic Credit Capital reinforces the jurisdictional boundary that the IBC draws around financial service providers, but also introduces a significant unresolved question about the temporal test for FSP status. While the three-member bench held that the relevant date is the date of the financial transaction, the conflicting rulings in Equitas Small Finance Bank v. Jumbo Finvest and Ankush Saluja v. Urmila Goyal favour the date of filing as the determinative moment. Until this conflict is resolved by a larger bench or the Supreme Court, creditors, corporate debtors, and insolvency practitioners must navigate this area with careful attention to the specific facts and the evolving case law.

The practical lesson is clear: FSP status under the IBC is not a permanent shield but a regulatory status that can change. Its determination depends on a factual and temporal inquiry that remains unsettled at the appellate level. Parties on both sides of an insolvency proceeding involving a current or former NBFC should be prepared to address this question comprehensively, with reference to the full body of NCLAT jurisprudence on the issue.

The information contained in this article is intended for general informational purposes and does not constitute legal advice. Readers should consult qualified legal counsel for advice specific to their circumstances.