Debenture Trustees Are Financial Service Providers, Insolvency Plea Not Maintainable: NCLT Mumbai

The National Company Law Tribunal at Mumbai has recently reiterated that debenture trustees are Financial Service Providers, and therefore insolvency proceedings under the Insolvency and Bankruptcy Code are not maintainable against them, dismissing a plea filed against Centbank Financial Services Ltd.

A coram of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar, in an order dated November 21, 2025, ruled that entities registered with the Securities and Exchange Board of India as debenture trustees fall within the definition of Financial Service Providers.

The tribunal held that since SEBI has not yet been notified as a regulator under the IBC, insolvency proceedings cannot be initiated against such entities.

“However, till date SEBI has not yet been notified as a regulator under the provision of Section 227 of IBC and therefore, under the present provisions, CIRP cannot be initiated against the financial service providers which are registered with SEBI.” the tribunal observed.

The ruling came on an application filed in July 2025 by Arthmetics Financial Services Pvt Ltd, which sought to initiate insolvency proceedings against Centbank Financial Services Ltd for an alleged default of Rs 3.71 crore. The claim arose from unpaid invoices under an arrangement between the two companies.

Arthmetics argued that Centbank could not claim immunity from insolvency proceedings merely because it was registered with SEBI. It contended that Centbank was not engaged in financial services within the meaning of the Code, pointing out that a substantial part of its income in the financial year 2023-24 came from non-financial activities.

The tribunal, however, examined Centbank's regulatory status and noted that it has been registered with SEBI as a debenture trustee since December 11, 2009, and that the registration continues to remain in force.

It held that debenture trusteeship squarely falls within financial services, as it involves safeguarding, administering and managing financial instruments on behalf of debenture holders.

Relying on the NCLAT's ruling in Saumil A. Bhavnagri vs Nimit Builders Pvt Ltd (2019), the tribunal reiterated that once an entity establishes its status as a Financial Service Provider through registration with a financial sector regulator, the adjudicating authority cannot go into alleged regulatory violations or examine the nature of its income streams.

The tribunal further held that insolvency proceedings against Financial Service Providers can be initiated only by the appropriate regulator, and only in the manner prescribed under the Code. Since SEBI has not been notified by the central government under Section 227, the application was held to be not maintainable.

Accordingly, the tribunal dismissed Arthmetics' insolvency application, while granting it liberty to pursue other remedies available under law.