On November 15, 2019 the Ministry of Corporate Affairs (MCA) has notified new rules known as the “Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (Rules)”. The rule provides framework for insolvency and liquidation proceedings of systemically important Financial Service Providers (FSPs) other than banks.
Section under which rule is applicable: The rule is applicable to FSPs under section 227 of the Insolvency and Bankruptcy Code(IBC) for the purpose of insolvency and liquidation proceedings from time to time. This section is aimed at creating a mechanism to deal with the exigency (urgent need or demand) pending and introduce full-fledged enactment of the FSPs.Key Points:
i.Section 227 applicability: The framework will not be applicable to banks. However specific categories of FSPs that do not fall under systemically important category will also be notified by the govt. These categories of FSPs will be resolved under the normal provisions of the Code as ordinarily applicable to corporate debtors.
ii.The new rules provide that the provisions of the Code relate to the corporate insolvency resolution process (CIRP), liquidation process and voluntary liquidation process for a corporate debtor applying to a process for an FSP.
iii. The resolution process will also be initiated only on the application made by the appropriate regulator. The regulator in most of the cases will be the Reserve Bank of India(RBI).
iv.Administrator under framework: The NCLT (National Company Law Tribunal) will also appoint an administrator in this regard. Under the framework, the administrator will have to require a ‘no objection’ form in case of approval of any resolution plan, regarding the persons taking over management of FSP.
v.IBC 2016: The IBC 2016, provides framework for reorganisation, insolvency resolution and liquidation of corporate persons, limited liability partnerships, partnership firms and individuals based on a time bound manner. Click here to know more.
About corporate affairs ministry:
Headquarters- New Delhi.
Union minister- Smt. Nirmala Sitharaman.
Minister of State(MoS)- Anuragh Singh Thakur.
Secretary- Injeti Srinivas.