In insolvency litigation, one of the most frequently raised preliminary objections is that the Corporate Debtor is a “Financial Service Provider” (“FSP”) and hence immune from the rigours of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The exclusion under Section 3(7) for the FSP is frequently used as a jurisdictional shield to delay or defeat admission of insolvency petitions.
The difficulty arises where an entity once held NBFC registration but had lost that status before initiation of insolvency proceedings against it. The question then is whether such past status confers permanent immunity or whether the exclusion depends upon the corporate debtor's status on the date of filing of the application under Section 7. This issue has now been settled by the National Company Law Appellate Tribunal (“NCLAT”) in its judgment dated 21st January 2026 in Ankush Saluja v. Urmila Goyal & Anr. (CA (AT) (Ins) No. 1560 of 2025).
The dispute arose from a Section 7 application filed by Ms. Urmila Goyal against Sharnarthi Finance Limited for initiation of CIRP alleging default of around Rs.6.78 crores, arising from loans advanced in 2016. The Section 7 application was admitted by the Adjudicating Authority by order dated 25th September 2025. In appeal, Mr. Ankush Saluja, member of suspended board of Corporate Debtor, raised a ground that since the corporate debtor had been an NBFC when the loans were granted, it continued to enjoy immunity from insolvency proceedings in view of the statutory protections available under Section 3(7). He also relied NCLAT's earlier decision in Akhilesh Kumar v. HDFC Bank Ltd. (CA (AT) (Ins) No. 895 of 2023). The Respondent Financial Creditor countered the Appeal by placing on record of a letter issued by RBI which shows that the corporate debtor's certificate of registration as NBFC had been cancelled during September 2018, well before the Section 7 application was filed in December 2019.
In the above factual backdrop, the central issue arose before the NCLAT was 'whether a corporate debtor continues to enjoy immunity from insolvency proceedings on the basis of past NBFC registration even after cancellation of such registration?
Dismissing the appeal, the NCLAT held that what matters is not whether the corporate debtor was an NBFC when the loan was disbursed, but whether it was an FSP on the date of filing of the application under Section 7. Once the RBI cancels the certificate of registration, the company loses the protection under Section 3(7) and becomes subject to insolvency proceedings. The exemption is not permanent. It lasts only as long as the regulatory approval continues.
This ruling strengthens legal certainty, discourages opportunistic defences, and aligns insolvency jurisdiction with regulatory reality. It marks an important consolidation of the temporal test for FSP exclusion under the IBC.
Jurisdictional Boundary
The IBC follows a narrow jurisdictional design. Section 3(7) includes companies and LLPs within the meaning of “corporate person”. However, it specifically excludes FSPs. Section 3(17) clarifies that an FSP is one who is carrying on financial services under a valid authorisation or registration from a sector regulator.
The exclusion is not a concession. It exists because banks, NBFCs, insurance companies and similar entities operate under specialised regulatory systems involving depositor protection, systemic stability and prudential control. Their failure has wider economic consequences and requires a separate resolution framework.
That is why Parliament introduced Section 227, empowering the Central Government to notify special insolvency regimes for select classes of financial service providers. Only those expressly notified are covered. All others remain outside the CIRP framework. But this exclusion is not permanent. It depends entirely on the corporate debtor's regulatory status at the time of filing of insolvency petitions. If the licence or registration cancelled/ expired, the exclusion goes along with it.
Reasoning of NCLAT
The NCLAT rejected the appeal and upheld the admission of CIRP on three simple principles. Firstly, an NBFC is excluded only so long as it continues to hold a valid registration. Section 3(17) makes this clear. Once the RBI cancels the certificate of registration, the entity is no longer an FSP and loses protection under Section 3(7).
Secondly, the relevant date is the date of filing of the Section 7 application. It does not matter whether the corporate debtor was an NBFC when the loan was given. What matters is whether it was an NBFC when insolvency was invoked.
The third reasoning given by the NCLAT is that the decision in Akhilesh Kumar v. HDFC Bank did not help the appellant. In that case, the NBFC status itself was disputed and required factual examination. However in the Ankush Saluja case, the cancellation of NBFC certificate by RBI was admitted and undisputed fact and no factual inquiry was required on that.
Practical Impact
The ruling reinforces a basic rule of insolvency law that Insolvency jurisdiction depends on present legal status of the corporate debtor and not on its past identity. If past NBFC status were treated as a permanent shield the same would defeat creditor protection and distort commercial discipline.
The approach of the NCLAT keeps the law grounded in reality. Insolvency must be invoked based on what the entity is today, not what it once was. This is also consistent with the Supreme Court's purposive approach to the IBC in cases such as Swiss Ribbons and Pioneer Urban, which caution against technical evasion of insolvency remedies.
Consistency with RBI Law
Under Section 45-IA of the RBI Act, no company can carry on NBFC business without a valid certificate of registration. Once the RBI cancels the registration, the company is legally barred from operating as an NBFC. It ceases to be a regulated financial institution.
By treating cancellation as decisive, the NCLAT has aligned insolvency jurisdiction with regulatory reality. It prevents regulatory arbitrage and ensures that legal responsibility tracks actual status.
Regulatory Protection under the 2019 FSP Rules
Regulation 5(a) and (b) of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 also supports this view. The special procedure under these Rules applies only where the entity continues to function as a regulated FSP and the application is initiated by the regulator or an authorised person.
If the registration has already been cancelled or surrendered, the company no longer comes under the 2019 Rules. The special protection attached to the registration ends there and the company will be treated like any other ordinary corporate entity for initiation of CIRP. This makes it clear that FSP exclusion depends on the company's present regulatory status, not on what it once was.
Procedural Clarity
Creditors need only to verify whether the corporate debtor held a valid registration on the date of filing. Past identity of the corporate debtor are not relevant. Corporate debtors can no longer rely on expired licences as a litigation shield in insolvency proceedings. Once registration is cancelled or surrendered, they become amenable to CIRP like any other company.
The ruling also prevents misuse of regulatory classifications and preserves the limited scope of the financial service provider exclusion.
Ankush Saluja v. Urmila Goyal draws a clean boundary. The exclusion for financial service providers is not a lifelong privilege. It lasts only while regulatory authorisation survives. When the licence ends, ordinary insolvency law applies.
The judgment strengthens legal clarity, commercial certainty and regulatory coherence. It keeps insolvency law aligned with living economic reality and not with the shadows of past corporate status.
The author is an Advocate at Supreme Court of India. Views are personal