• The Rules apply to financial service providers or categories of financial service providers, as may be notified by the Central Government under Section 227 of the IBC, from time to time.

• The corporate insolvency resolution process (CIRP) has been made applicable to notified financial service providers. For CIRP to commence, an application must be made by the relevant financial sector regulator to the National Company Law Tribunal (NCLT).

• The aforesaid application must also propose the name of an “Administrator” who substitutes an insolvency professional, interim resolution professional, resolution professional or liquidator, on admission of the application, for the purpose of insolvency and liquidation proceedings of a financial service provider.

• The Rules also contemplate an Advisory Committee appointed by the financial service regulator to assist the Administrator during the insolvency process.

• A moratorium commences from the date of filing the application till its admission or rejection by NCLT. The license or registration granted to the financial service provider continues in force throughout the CIRP.

• The resolution plan must contain a statement of how the resolution applicant satisfies the sectoral requirements of the financial service provider as laid down by the financial service regulator.

• Upon approval of the resolution plan by the committee of creditors, a no objection from the financial service regulator must be obtained on the persons who would take over the control and management of the financial service provider. The no objection (without prejudice to the disqualifications under Section 29-A of the IBC) must be issued by the financial service regulator based on ‘fit and proper criteria’ applicable to the business of the financial service provider. If the financial service regulator does not respond within 45 (forty five) days of the no objection request, the no objection is deemed to have been given.

• The provisions on liquidation including voluntary liquidation under the IBC apply mutatis mutandis to financial service providers.

• The moratorium does not apply to third party assets or properties in the custody or possession of the financial service provider including any funds, securities and other assets required to be held in trust for the benefit of third parties. The Administrator must take control of these assets and deal with them in the manner notified by the Central Government.

• The Rules also prescribe Form 1 for applying under the Rules to commence CIRP against the financial service provider by the financial sector regulator.

This update was released on 28 Nov 2019.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
Advocates, Solicitors and Notaries
T: +91 22 40565252
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