NCLT Delhi: NBFC Registration Alone Not Enough to Escape IBC; CIRP Admitted Against Madhuvan Tieup

April 6, 2026 : The National Company Law Tribunal (NCLT), New Delhi Bench (Court–II), has held that mere possession of an NBFC registration certificate does not qualify a company as a “financial service provider” under the Insolvency and Bankruptcy Code, 2016, unless it is demonstrably engaged in financial service activities. The Tribunal accordingly admitted insolvency proceedings against Madhuvan Tieup Pvt. Ltd. in a petition filed by HDFC Bank Limited.

A Bench comprising Judicial Member Ashok Kumar Bhardwaj and Technical Member Reena Sinha Puri passed the order on 06 April 2026 under Section 7 of the Code.

Background of the Case

HDFC Bank filed the petition seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for a default of over ₹80.78 crore. The loan facilities had been sanctioned in 2017 and 2018, and the account was classified as a Non-Performing Asset (NPA) on 27 December 2019.

The Tribunal noted that the financial debt and default were duly established through loan documents, recall notices, and financial records. It also rejected procedural objections raised by the Corporate Debtor, including arguments relating to SARFAESI proceedings, Section 10A protection, and non-filing of Information Utility records.

NCLAT Remand on NBFC Issue

Initially, the petition had been admitted in July 2023. However, the Corporate Debtor challenged the admission before the NCLAT, claiming NBFC status based on an RBI registration certificate.

The Appellate Tribunal remanded the matter to the NCLT for a limited inquiry into whether the company was actually engaged in financial services within the meaning of Sections 3(16) and 3(17) of the IBC.

Key Findings of the Tribunal

Upon reconsideration, the NCLT undertook a detailed factual and legal analysis and held:

• Registration vs. Actual Activity:
  The Tribunal clarified that NBFC registration alone is insufficient. What is decisive is whether the company is actively engaged in financial services such as lending, deposit-taking, or asset management.
• Lack of Financial Activity:
  The Corporate Debtor failed to produce evidence showing it carried on financial services. Its business activities, as reflected in its Memorandum of Association, primarily involved trading in goods and commodities—not financial operations.
• Surrender and Inactivity of NBFC Status:
  The Tribunal observed that the NBFC certificate obtained in 2003 had effectively lost relevance, particularly as it was surrendered in 2014 and the company did not appear in RBI records for a substantial period (2013–2023).
• Financial Structure Inconsistent with NBFC Norms:
  The company’s liabilities significantly exceeded regulatory norms typically applicable to NBFCs. The Tribunal noted that such a financial structure would not align with a functioning NBFC.
• Negligible Operations:
  The Corporate Debtor reported minimal operational revenue (₹7,714), indicating that it was not functioning as a financial institution in any meaningful sense.

Legal Position Clarified

The Bench emphasized that:

• A “financial service provider” under the IBC must be both registered and functionally engaged in financial services.
• The status of a company must be assessed based on its actual conduct and business activities, not historical or dormant registration.
• The special exclusion granted to financial service providers under the IBC is intended to protect entities whose failure could impact financial system stability—not dormant or non-functional entities.

Admission of CIRP

Having rejected the NBFC defence, the Tribunal admitted the application under Section 7(5) of the IBC. It imposed a moratorium under Section 14, prohibiting:

• Institution or continuation of legal proceedings
• Transfer or disposal of assets
• Enforcement of security interests

The Tribunal also appointed Mr. Umesh Gupta as the Interim Resolution Professional (IRP) to take over management of the Corporate Debtor and conduct the CIRP.

Conclusion

The ruling reinforces a key principle under insolvency law: formal regulatory status cannot override substantive business reality. Companies cannot evade insolvency proceedings merely by relying on outdated or inactive NBFC registrations. The decision underscores that eligibility for exemption under the IBC depends on actual engagement in financial services, not nominal classification.

Case Title: HDFC Bank Limited v. Madhuvan Tieup Pvt. Ltd.
Case No.: CP (IB)-25/ND/2023
Decision Date: 06 April 2026