Sec. 238 of IBC Prevails over SARFAESI, AA Erred in Rejecting RP for Lacking RBI’s Approval u/s 10(2) SARFAESI: NCLAT

Case Details: Puissant Towers India (P.) Ltd. v. Neueon Towers Ltd. - [2023] 151 taxmann.com 213 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Ms Shreesha Merla, Technical Member

Facts of the Case

In the instant case, the Committee of Creditors (CoC) approved a resolution plan with a 98.70% majority. The Resolution professional (RP) filed an application before the Adjudicating Authority (NCLT) for the approval of the resolution plan.

However, the same was dismissed on the ground that one of the resolution co-applicants being an Asset Reconstruction Company (ARC), the resolution plan could not have been submitted without the prior approval of the Reserve Bank of India as per section 10(2) of SARFAESI Act, 2002.

Thereafter, an appeal was filed with the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

The appellant argued that the ARC did not require prior approval of the RBI to participate as a resolution co-applicant under the IBC, provided that any of the activities undertaken by the ARC as part of the resolution plan submitted by it was not prohibited under the SARFAESI Act.

NCLAT Held

The NCLAT observed that section 238 of the IBC would prevail over the provisions of the SARFAESI Act, 2002, if there was any inconsistency with any provisions of the IBC. Therefore, the Adjudicating Authority ought not to have placed reliance on Section 10(2) of the SARFAESI Act, 2002.

Consequently, the NCLAT held that the liquidation order of the Adjudicating Authority was to be set aside and the matter was remanded back to the Adjudicating Authority for the approval of the Resolution Plan.