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The Centre on Friday issued rules that provide a framework for bringing ‘systemically important financial service providers’ under the purview of the Insolvency and Bankruptcy Code (IBC).

“Section 227 of the [Insolvency and Bankruptcy] Code enables the Central government to notify, in consultation with the financial sector regulators, financial service providers (FSPs) or categories of FSPs for the purpose of insolvency and liquidation proceedings, in such manner as may be prescribed,” it said in a release.

“Accordingly, the Ministry of Corporate Affairs has notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 today to provide a generic framework for insolvency and liquidation proceedings of systemically important FSPs other than banks.”

Finance Minister Nirmala Sitharaman said the notification was necessitated because there was no system like the IBC that was designed exclusively for financial institutions. “This notification was brought out in an environment where it might be necessary to invoke an IBC-like proceeding on a financial institution, but where there is no exclusive arrangement for financial institutions,” she told reporters on Friday.

The Minister added that it was up to the Reserve Bank of India to now decide which financial companies would be taken up under these rules. However, she did add that the government was looking to bring out a set of rules exclusively for financial companies as well. “We want to bring in an IBC equivalent for financial companies.”

“The introduction of an interim framework for resolution of financial service providers under the IBC is a timely and important step for resolution of financial service providers permitting an interplay between regulators, creditors and the NCLT (National Company Law Tribunal) for appropriate actions,” L. Viswanathan, partner, Cyril Amarchand Mangaldas said.

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