The Ministry of Corporate Affairs (MCA) has notifies the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudication Authority)  Rules 2019 (Rules) to provide a generic framework for insolvency and liquidation proceedings of systemically important Financial Service Providers (FSPs) other than Banks. These rules fill the legislative lacuna by setting out a special framework for insolvency and liquidation process of Financial Service Providers (FSPs). In the year 2018 National Company Law Appellate Tribunal had held that Financial Service Providers such as non- banking financial companies are outside the purview of the Insolvency and Bankruptcy Code. The Rules provide for a special framework to deal with any exigency pending introduction of a full- fledged enactment to deal with financial resolutions of Banks and other systematically important financial service providers.

The Rules provide that the provisions of the Code relating to the Corporate Insolvency Resolution Process (CIRP), Liquidation Process and Voluntary Liquidation Process for a corporate debtor shall, mutatis mutandis, apply to a process for an FSP, subject to modifications, as under:

1. Initiation of Corporate Insolvency Resolution Process: The Rules state that no Corporate Insolvency Proceedings can be initiated against a Financial Service Provider except upon an application made by the appropriate regulator. On admission of the application, the Adjudicating Authority shall appoint the individual, who has been proposed by the appropriate regulator in the application for initiation of CIRP, as the Administrator.
2. Moratorium: An interim moratorium shall commence from the date of filing of application till its acceptance or rejection. The license/ registration of the Financial Service Provider shall not be cancelled during the interim- moratorium period.
3. Resolution Plan: The Resolution plan shall consist of a statement explaining how the resolution applicant satisfies the requirements of engaging in the business of the financial service provider. Upon approval of the resolution plan from the Committee of Creditors, the administrator shall seek ‘no objection’ of the appropriate regulator to the effect that it has no objection the persons, who would be in control or management of the financial service provider after approval of the resolution plan. In case an appropriate regulator does not refuse ‘no objection’ on an application made under clause (ii) within forty- five working days of receipt of such application, it shall be deemed that ‘no objection; has been raised.
4. Liquidation process. The provisions of the Code shall apply in liquidation proceedings however the license or registration of the FSP shall not be suspended or cancelled during the liquidation process, unless an opportunity of being heard has been provided.
5. Voluntary Liquidation Process: In case of Voluntary Liquidation Process the the financial service provider shall obtain prior permission of the appropriate regulator for initiating voluntary liquidation proceedings. The Adjudicating Authority shall provide the appropriate regulator an opportunity of being heard before passing an order for liquidation or dissolution of the FSP.
6. The Administrator shall take control and custody of third-party assets or properties in custody or possession of the FSP and deal with them in the manner, to be notified by the Central Government under Section 227.