Apeejay Trust v. Aviva Life Insurance – FSPs and the IBC

[By Aman Sadiwala]

The author is a student at National Law School of India University, Bengaluru


The Insolvency and Bankruptcy Code, 2016 (“IBC”) provides the insolvency resolution process for corporate persons in Part II. Section 3(7) of the IBC defines “corporate person” and specifically excludes any financial service provider (“FSP”) from its ambit. Section 3(8) defining “corporate debtor” qualifies this ‘corporate person’ as one who owes a debt to any person. Thus, it is evident that a ‘corporate debtor’ as envisaged under the IBC does not include an FSP. Section 4 of the IBC limits the applicability of Part II to corporate debtors, thereby excluding FSPs from its purview. Despite this apparent clarity in the position of law, the judgment of the National Company Law Tribunal (“NCLT”) in Apeejay Trust v. Aviva Life Insurance Co. India Ltd. (2019) has raised questions regarding the relation between the IBC and FSPs.

Aviva Life Insurance (“Aviva”), the Corporate Debtor had debt arising from non-payment of license fees, car parking, maintenance charges and service tax. Apeejay Trust (“Apeejay”), the Operational Creditor filed the petition before the NCLT praying for initiation of the Corporate Insolvency Resolution Process (“CIRP”) of Aviva. Aviva argued that being an insurance company, it qualified as an FSP and did not fall within the scope of the IBC. The NCLT noted that the transaction between Apeejay and Aviva was not in the nature of financial services and concluded that Aviva did not qualify as an FSP in this transaction. The NCLT ruled in favour of Apeejay and initiated CIRP of Aviva.

Section 3(17) of the IBC defines FSP as “a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator”. Section 3(16) which defines “financial service” covers ‘contracts of insurance’ in sub-section (c). Section 3(18) which defines “financial sector regulator” includes the Insurance Regulatory and Development Authority of India. While Aviva meets the definitional requirements relating to Sections 3(16) and 3(18), the question that arises is whether an FSP as defined in Section 3(17) looks at the nature of debt or the nature of the corporate person.

In this piece, I argue that the NCLT erred in its consideration of the nature of debt when instead, it should have looked at the nature of the corporate person. I present a two-pronged argument to support my thesis: first, based on statutory interpretation of relevant provisions; and second, that the judgment is per incuriam and inconsistent with previous National Company Law Appellate Tribunal (“NCLAT”) judgments.

Statutory Interpretation of Relevant Provisions

First, the definition in Section 3(17) uses the phrase “person engaged in the business of”. To understand the scope of this definition, I rely on rules on statutory interpretation. The Literal Rule requires that words be given their natural and ordinary meaning unless it results in vagueness and ambiguity. Oxford Dictionary defines “business” as “a person’s regular occupation”. There is no indication in Section 3(17) that one needs to look specifically at the transaction in question and identify the nature of debt. The natural meaning of the definition looks at the recurring activity a corporate person is engaged in, thus being concerned with its general nature and not the specific nature of debt in that transaction.

The Golden Rule is applied if the literal interpretation leads to absurdity or an injustice. It permits certain alterations to the original words after ascertaining the legislature’s intention. The Mischief Rule also carries out a purposive interpretation and requires a construction which suppresses mischief, while advancing the remedy in accordance with the true intent of the legislation drafters. While I argue that the Golden Rule and the Mischief Rule need not be looked at as the Literal Rule squarely applies, even if one was to rely on either of these rules, it would still follow that the nature of the corporate person needs to be looked at. FSPs were specifically excluded due to the adverse impact that an insolvency process of an FSP under the IBC would have on the economy as well as its numerous consumers. This was also recognized in the Report of the Financial Sector Legislative Reforms Commission. Given that the rationale to exclude FSPs is based on their nature in general and their impact on the economy and its consumers, it is evident that the nature of the corporate person determines whether an entity is an FSP.

Moreover, Section 227 of the IBC allows the Central Government to notify FSPs of their insolvency and liquidation proceedings and prescribe its manner. In light of this, the Central Government notified the  Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. These Rules provide a different insolvency resolution process for FSPs compared to those for corporate debtors under the IBC. For instance, any creditor with a claim of at least INR 1,00,000 can institute CIRP against the corporate debtor under Section 4 of the IBC while only the appropriate regulator can initiate CIRP against the FSP under Rule 5(a)(i) of the aforementioned Rules. This stringent requirement under the Rules aligns with the legislative intent and is based on the nature of the corporate person. There exists no rationale for this different standard based on the nature of debt in the transaction.

Inconsistency with Precedents

Secondly, the NCLT failed to consider judgments of the NCLAT in Randhiraj Thakur v. M/s Jindal Saxena Financial Services Private Ltd. and anr. (2018) and HDFC Ltd. v. RHC Holding Private Ltd. (2019). Admittedly, in both these cases, the debts in the transactions were in the nature of ‘financial services’ and thus, the facts of those cases are not completely analogous to those in the Apeejay Trust case which has an operational debt. However, the analysis and ratio of the NCLAT in both these cases can be relied upon to show that the NCLAT looked at the nature of the corporate person and not the nature of debt.

In the Randhiraj Thakur case, the NCLAT relied on the Memorandum of Association of Mayfair Capital to look at its main object and the kind of ‘business’ it carried on. While the NCLAT observed that Mayfair Capital was not a Corporate Debtor “in regard to transaction in quest”, this was because the nature of debt happened to be of a ‘financial service’. Hypothetically, if there was an operational debt instead, the NCLAT would have arrived at the same conclusion, based on its analysis.

The approach of the NCLAT becomes clearer in the HDFC case. The entire judgment of the NCLAT has no mention of the nature of debt. Instead, the NCLAT relied on the Certificate of Registration issued by Reserve Bank of India and on provisions of the Reserve Bank of India Act, 1934; both dealing with the nature of the corporate person itself and not with the nature of debt. Even the NCLT before this partook in a similar analysis as the Randhiraj Thakur case and looked at the Memorandum of Association of RHC Holding to ascertain its main object. Based on this, the NCLAT finally concluded that RHC Holdings was carrying on ‘business’ of financial institutions and thus qualified as an FSP.


Therefore, the NCLT erred in its judgment by not considering the nature of the corporate person and looking at the nature of debt instead. While this dispute has been resolved through a settlement between the parties, it is imperative that this anomaly in the position of law is rectified; else there could be a situation where the same FSP could be tried under two separate laws based on the nature of debt, which is contrary to legislative intent and may have serious implications on the economy.


[i] Apeejay Trust v. Aviva Life Insurance Co., 2019 SCC OnLine NCLT 628.

[ii] Randhiraj Thakur v. Jindal Saxena Financial Services Private Ltd. and anr., 2018 SCC OnLine NCLAT 508.

[iii] Housing Development Finance Corporation Ltd. v. RHC Holding Private Ltd., 2019 SCC OnLine NCLAT 398.


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