Insolvency and Liquidation Proceedings of Financial Service Providers Rules, 2019

India does not have a comprehensive framework for the resolution of distressed Financial Service Providers (FSPs). The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) sought to establish a consolidated framework for this but it has not been enacted yet.  As a result, the resolution framework for financial firms is scattered across various statutes with disparate powers conferred on several financial sector regulators. 

The Insolvency and Bankruptcy Code, 2016 (IBC) specifically excluded FSPs from within the purview of ‘corporate persons’ that can be resolved under it. This is because the business of financial services is structured differently in comparison to other businesses in that many FSPs often handle large amounts of consumer money and some of them are systemically important as their failure might disrupt the financial system and adversely impact the economy. Such FSPs are best resolved under a special resolution regime.

In recent times, instances involving financial distress among a class of FSPs demonstrated the need for an insolvency and liquidation mechanism for FSPs to avoid a legal vacuum until enactment of a comprehensive framework (like the FRDI Bill). Accordingly, in light of the power conferred on the Central Government under Section 227 of the IBC, which empowered the government to notify FSPs or categories of FSPs for the purpose of their insolvency resolution and liquidation under the IBC (in consultation with the appropriate financial sector regulators), the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (Rules) were notified to provide an enabling framework with appropriate modifications to the regular processes under the IBC. Most notably, an application under these Rules can only be initiated by the FSPs primary regulator. Currently, only non-banking finance companies of a certain size can be resolved under these Rules.

About the Contributors

Debanshu Mukherjee

Debanshu is one of Vidhi’s Co-Founders. He has over a decade of experience in commercial laws and the financial sector and has advised the Government of India on several legislative projects in this space. He was instrumental in advising the Government on the design and drafting of the Insolvency and Bankruptcy Code and its subsequent implementation. He has developed and curated Vidhi’s work on insolvency law, corporate law, financial regulation, and competition law and conceptualized its Bankruptcy Research Program. He has served as a member of a Government-appointed committee for operationalizing the National Company Law Tribunal and deposed before two Parliamentary committees examining financial sector legislation. He has also worked as a teaching fellow at Harvard Law School. He is an alumnus of the Harvard Law School, the University of Oxford, and Hidayatullah National Law University. He attended Harvard as a Fulbright Scholar and was awarded the Irving Oberman Memorial Prize in Bankruptcy and the Dean’s scholar prize in Corporations. He was also awarded a Distinction for his graduate studies at Oxford. In 2017, he was selected for NYU School of Law’s Hauser Global Scholarship, which he waived. His academic work has been published in peer-reviewed journals and an edited book published by Cambridge University Press, New York. He has been consulted by and mentioned in global business publications, such as IFR Asia and The Economist. Earlier, Debanshu practiced as an M&A and regulatory lawyer with AZB & Partners at its Mumbai and New Delhi offices.

Astha Pandey

Astha was a Senior Resident Fellow working in the area of Corporate Law and Financial Regulation. She completed her B.A.,LL.B. (Hons.) from the NALSAR University of Law in 2014 and her LL.M from the University of Cambridge in 2015.

Anjali Anchayil

Anjali worked as a Project Fellow at the Vidhi Centre for Legal Policy.