National Company Law Appellate Tribunal, Chennai: While deciding the eligibility of an Asset Reconstruction Company (ARC) as Co-Resolution Applicant, a Division bench comprising M. Venugopal, J., and Shreesha Merla* (Technical Member), held that prior permission of RBI is not required by an ARC for participating as a Co-Resolution Applicant in the Resolution Plan when no equity rights are acquired by the ARC.
In the present matter, the appellant-Resolution Professional had preferred an application under S. 31(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the Adjudicating Authority seeking approval of CoC’s approved Resolution Plan consisting of 2 resolution applicants, Longview Resources (HIK) Limited Hong Kong (main Resolution Applicant) and an Asset Reconstruction Company (ARC), Invent Assets Securitization and Reconstruction (P) Ltd. (Co-Resolution Applicant).
The Adjudicating Authority vide order dated 14-10-2021 rejected the Resolution Plan and held that the same cannot be approved. Aggrieved by impugned order dated 14-10-2021 passed by the Adjudicating Authority, the appellant preferred an appeal before the NCLAT challenging the same.
The appellant contended that the ARC was not acquiring any equity rights of the Corporate Debtor under the Resolution Plan but was a Co-Resolution Applicant only in the capacity of payment of assignable financial debt, therefore, the analogy drawn by the Adjudicating Authority is at error and the ARC is not barred from participating in the Resolution Plan as Co-Resolution Applicant.
The Adjudicating Authority rejected the Resolution Plan and stated that the ARC (Co-Resolution Applicant) cannot submit resolution plan prior approval of RBI under S. 10(2) of SARFAESI Act, 2002. The Adjudicating Authority further held that the impugned resolution plan has become a conditional resolution plan subject to the approval of RBI, therefore the same cannot be approved.
Whether prior approval of RBI is required by an Asset Reconstruction Company for participating as Co-Resolution Applicant under IBC?
The NCLAT observed that S. 238 of the IBC will prevail over any of the provisions of the SARFAESI Act, 2002, if there is any inconsistency between the same and therefore, the Adjudicating Authority was at error to have placed reliance on S. 10(2) of the SARFAESI Act, 2002.
The NCLAT observed that the Supreme Court in plethora of cases held that the “commercial wisdom of the CoC is non-justifiable” and therefore in the instant matter when the resolution plan is approved by the majority of 98.70%, it cannot be said that there is any material irregularity under S. 30(2) of the IBC.
Considering the clarification given by the counsel for RBI that no prior permission is required by the ARC in the present case, The NCLAT observed that the Adjudicating Authority ought not to have rejected the Resolution Plan.
While allowing the present appeal, the NCLAT set aside the impugned order passed by the Adjudicating Authority rejecting the Resolution plan directing ‘Liquidation’. The NCLAT remanded back the present matter to the Adjudicating Authority for approval of the Resolution Plan under S. 31(1) of the IBC. The NCLAT requested the Adjudicating Authority to decide the present matter within one week from the date of this Order.
[Puissant Towers India (P) Ltd. v. Neueon Towers Ltd., 2023 SCC OnLine NCLAT 300, order dated 12-06-2023]
*Judgment by Shreesha Merla (Technical Member)
Advocates who appeared in this case :
Mr. Sandeep Bajaj, Counsel for the Appellant;
Mr. Chevanan Mohan, Counsel for the RBI.