In a significant development, the National Company Law Appellate Tribunal (NCLAT) has held today that the rejection of a Resolution Plan by the National Company Law Tribunal (NCLT) was erroneous. The rejection was based on the involvement of an Asset Reconstruction Company (ARC) and the requirement of prior approval from the Reserve Bank of India (RBI).
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice M. Venugopal, Judicial Member and Ms. Shreesha Merla, Technical Member was hearing today an appeal.
The NCLAT's ruling came in response to a challenge made against an order passed on October 14, 2021, by the NCLT in Hyderabad. The NCLT had dismissed an application filed by the Resolution Professional (RP) seeking approval of a Resolution Plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016.
The Adjudicating Authority rejected the application on the grounds that one of the co-Resolution Applicants was an ARC, and as per the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, prior approval from the RBI was required. Citing previous judgments, the Adjudicating Authority concluded that the Resolution Plan contravened Section 30(2)(e) of the Code.
However, the Committee of Creditors had approved the Resolution Plan with a majority share of votes, which prompted the appellant to challenge the rejection. The appellant argued that the ARC co-applicant did not require RBI approval since it was not acquiring any equity shareholding. Additionally, the appellant sought the view of the RBI, although the NCLAT deemed it unnecessary to implead the RBI as a necessary party.
In its ruling, the NCLAT held that the rejection of the Resolution Plan was unjustified. The Appellate Tribunal stated that the involvement of an ARC and the absence of equity shareholding acquisition did not necessitate prior approval from the RBI. The NCLAT further remanded the matter to the Adjudicating Authority, directing it to approve the Resolution Plan within one week from the date of the order.
This decision by the NCLAT is expected to have a significant impact on the insolvency and bankruptcy proceedings involving ARC co-applicants. The clarification regarding RBI approval for ARC involvement will provide more clarity and streamline the resolution process, benefiting all stakeholders involved.
The parties involved in the case are now awaiting the Adjudicating Authority's approval of the Resolution Plan, which is expected to bring the long-drawn-out proceedings to a close and provide a much-needed resolution for the company under insolvency.