In the case of Puissant Towers India (P) Ltd. v. Neueon Towers Ltd Before the adjudicating authority, the appellant-Resolution Professional had submitted an application under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, asking for approval of the CoC’s approved Resolution Plan, which included two resolution applicants: the main resolution applicant, Longview Resources Limited Hong Kong, and the co-resolution applicant, Invent Assets Securitization and Reconstruction Ltd. The Adjudicating Authority denied approval of the Resolution Plan and rejected it. The appellant filed a challenge before the NCLAT after being upset by the contested ruling made by the adjudicating authority.
Can an Asset Reconstruction Company participate as a Co-Resolution Applicant under the IBC without the previous consent of RBI?
The appellant argued that the Adjudicating Authority’s analogy was flawed and that the Asset Reconstruction Company was not prohibited from participating in the Resolution Plan as a Co-Resolution Applicant because the Asset Reconstruction Company was not acquiring any equity rights of the Corporate Debtor under the Resolution Plan but rather was only a Co-Resolution Applicant in the capacity of paying the assignable financial debt.
Analysis of NCLT Verdict
When no equity rights are acquired by the Asset Reconstruction Company, an ARC is not required to obtain prior approval from RBI in order to participate as a Co-Resolution Applicant in the Resolution Plan, according to the Division Bench of the NCLT made up of Justice M. Venugopal and Justice Shreesha Merla Technical Member
The Adjudicating Authority erred by relying on Section 10(2) of the SARFAESI Act, 2002, as the NCLAT pointed out that Section 238 of the IBC will take precedence over any provision of the SARFAESI Act, 2002, if there is any discrepancy between the two. The NCLAT noted that the Supreme Court had ruled in numerous cases that the commercial wisdom of the CoC is non-justifiable. As a result, the NCLAT concluded that in the present case, where the resolution plan was approved by a majority of 98.70%, there was no material irregularity as defined by Section 30(2) of the IBC. The NCLAT noted that the Adjudicating Authority should not have rejected the Resolution Plan in light of the clarification provided by the RBI counsel that no prior authorization is required by the ARC in the current matter.
The NCLAT dismissed the Adjudicating Authority’s contested ruling rejecting the Resolution plan mandating “Liquidation” but permitting the current appeal. The NCLAT returned the current case to the adjudicating authority so that the Resolution Plan may be approved in accordance with Section 31(1) of the IBC. Within one week of the date of this Order, the NCLAT asked the adjudicating authority to decide on the current case.