Aviva Life Insurance has become the first financial company to be admitted into Insolvency and Bankruptcy Code (IBC) proceedings after the National Company Law Tribunal (NCLT) upheld a landlord’s claim accusing the insurer of failing to meet its payment obligations and ordered the commencement of the company’s insolvency process, court documents were seen by ET reveal.
Considering the circumstances, this tribunal is inclined to admit this petition and initiate CIRP of the corporate debtor (Aviva)”, said a 10-page order passed by the NCLT detailing grounds for the admission of the landlord’s plea. The life insurer, which is a 51:49 JV between the Burman family that controls consumer goods maker Dabur and Britain’s Aviva Plc, has denied owing money to the landlord, Kolkata-based Apeejay Group, whose premises in Mumbai the company has been occupying for over a decade.
The insurer also claimed in court filings that IBC laws do not allow for insolvency of financial services providers. The seeds of the commercial dispute between Aviva and Apeejay group were sown two years ago when the former stopped making payments towards license fees for Apeejay House, a property that belongs to Apeejay Trust, as per the court filings. Though the NCLT noted that IBC exempts financial services providers from insolvency proceedings, it rejected Aviva’s attempt to seek an exemption on these grounds.
The definition of financial service under Section 3 (16) of the Code clearly includes the transactions affecting the contract of insurance. However, the operational creditor (Apeejay Trust) does not have any claim in respect of the contract of insurance. The claim is with respect to license fees and the service tax amounts”, the tribunal said in its order.
“The corporate debtor cannot use the provisions of Section 3 of the Insolvency and Bankruptcy Code, 2016 as a blanket cover to claim an exclusion from IBC proceedings on the ground that it is a financial service provider,” the order said The tribunal upheld Apeejay Trust’s claim for recovery of license fees of Rs 27 lakh from Aviva Life Insurance and ordered the appointment of Jatin Madan as an insolvency resolution professional (IRP) to be charged with the affairs of the insurer till the committee of creditors is convened. “This matter is subject to litigation and Aviva will not comment on the specifics of the individual case. Aviva manages and conducts business according to rigorous ethical, professional and legal standards,” an Aviva spokesperson said in response to ET’s queries.
A spokesperson for Apeejay Group declined to comment. The ruling has been termed as unusual by several legal experts. “Insurance companies seem to be covered within the ambit of companies providing financial services and therefore should be outside the purview of IBC,” said Siddharth Srivastava, partner at Link Legal. “One has to analyze the order in detail to understand the contours and rationale of such a conclusion by the tribunal.” Aviva Life Insurance posted a profit of Rs 50 crore in 2018-19 though it has accumulated losses of around Rs 1,200 crore over time, which were carried forward in its books.
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