NCLT ordered insolvency proceedings against a financial service provider

Apeejay Trust v. Aviva Life Insurance Co. India Ltd

In Apeejay Trust v. Aviva Life Insurance Co. India Ltd., dated 4 November 2019, The National Company Law Tribunal (NCLT) ordered initiation of proceedings against Aviva Life Insurance Co. India Ltd. (Aviva) in a case filed by Apeejay Trust (Apeejay). The petition was filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). It was decided by a two-member bench of NCLT, Delhi. This comprised of Justice R D Khare, the judicial member and Sumita Purkayastha, the technical member. 

In the judgement, the petitioner, Apeejay and the respondent, Aviva, entered into a Lease and License Agreement for office premises and other services situated in Vashi, Mumbai. The respondent, despite repeated requests defaulted in making payments towards license fees, car parking, maintenance/service charges and service tax. This was a total sum of INR 27,67,203/- Aviva had made its payment last in 5 October 2017 and then onwards, all dues were pending. Also, vide reply dated 27 May 2019, the respondent denied all liabilities and stated that there was no such dues payable to Apeejay.

Thus, the petitioner as the operational creditor prayed for initiation of corporate insolvency resolution against the respondent, the corporate debtor.  The respondent argued that they were financial service providers as per section 3(17) of IBC and thus they are to be exempt from the purview of IBC.  The respondents said that there is an absolute bar under IBC for initiation of any proceeding against insurance company like a corporate debtor and thus the petition should have been dismissed. 

However, the NCLT admitted the case. The rationale of NCLT to admit the case was that Aviva had defaulted on its landlord, Apeejay and Aviva didn’t give any financial assistance or insurance cover to Apeejay. Thus the claim was with respect to the outstanding license fee and service tax amount as opposed to financial services provided by an insurance company. Therefore the contract was not a financial service in the nature of an insurance contract as required under section 3(16) of IBC. Since it didn’t fall under the category of financial service provider, it cannot be exempted from IBC. Thus, Aviva could not claim benefits of exemption for financial service providers under the IBC using the blanket cover to claim exclusions from IBC on grounds of being a financial service provider. 

Thus the plea against Aviva was allowed and a moratorium was also declared under section 14 of IBC to protect the company from its lenders during the resolution process. Also, an interim resolution professional was appointed who would then file a report before the Adjudicating Authority. 

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