Whether RBI approval is required if ARC is a Co-Resolution Applicant? – Sparsh Srivastava

Whether RBI approval is required if ARC is a Co-Resolution Applicant?

Sparsh Srivastava
3rd year B.B.A.LL.B. Student, National Law University Odisha


Insolvency and Bankruptcy Code, 2016 (“IBC”) is a growing law (in other words, not a very settled law). This can be observed from conflicting decisions that lead to various diverse opinion due to continuously emerging jurisprudence. IBC intersects various laws, inter alia, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). Asset Reconstruction Company (“ARC”) is a financial institution, that primarily, buys and recover bad assets from banking and other financial institutions. SARFAESI Act limits the scope of working of ARC to securitization or asset reconstruction or business specified under section 10(2). The functioning of ARC is out of the scope of this paper.

However, a specific question pursuant to whether SARFAESI Act mandates RBI approval if an ARC wants to be a Co-Resolution Applicant, is discussed here. In the recent judgement of Puissant Towers India Pvt. Ltd. v Neueon Towers Ltd. & Ors. (2023) ibclaw.in 391 NCLAT, NCLAT while setting aside the order of NCLT,  held that it is not necessary for an ARC to seek RBI approval if it is a co-resolution applicant.

The findings of NCLT and NCLAT were prima facie conflicting to each other but they do not create a confusion in law by virtue of the established hierarchy of Tribunals. Thus, decision of NCLAT shall prevail. The author does challenge the status quo, however, attempts to critically analyze the judgment(s).

Background of the Case

Neueon Tower Ltd.(“Neueon Tower”), the corporate debtor took an unsecured loan from the Puissant Towers India Ltd.(“Puissant Towers”) to meet the due payments of its Financial Creditors in the period of 2018-19. Consequently, the CIRP process was initiated against Neueon Tower u/s 7 of the IBC in June 2019. IRP was appointed, Committee of Creditors (“CoC”) was constituted and several meetings of the CoC were duly held. Following the procedure as established under the IBC, the Resolution plan was decided with M/s Longview Resources Pvt Ltd. (“Longview”) and M/s Invent Assets Securitization and Reconstruction Pvt Ltd. (“Invent ASR”) being considered as joint Final Resolution Applicants and the same approved by a majority of 98.70% of the Committee of Creditors on 19.10.2020. Further, the Performance bank Guarantee lying with Resolution Professional (“RP”) was deposited and thereafter, the RP filed for seeking approval of the CoC approved resolution plan.

Various hearings were held before the Adjudicating Authority i.e., NCLT, Hyderabad and on 14 October 2021, an order was passed rejecting the resolution plan and directing the commencement of the Liquidation as it opined that the resolution plan is subject to approval of RBI mandated u/s 10(2), which provides ARC to seek approval to conduct any business other than that of securitisation or asset reconstruction, hence, contravene sec 30(e) by violating the law in force i.e. the SARFAESI Act.

It was impugned before NCLAT which overturned the judgement on 12 June 2023.

Analysis of the Judgements

Before moving to NCLAT, let us have a look at the reasoning of NCLT. The Hon’ble Tribunal rejected the Resolution Plan u/s 31(2) of IBC and passed order of liquidation against Neueon Tower in manner prescribed in Chapter III of the Code. The judgement was problematic in various ways. First, the Tribunal used literal rule of interpretation and held that Invent ASR cannot submit resolution plan as Co-Applicant with Longview, without prior approval of RBI u/s 10(2) of SARFAESI Act. Therefore, held that the Resolution Plan contravene sec 30(2)(e) of the Code. The approach taken is here is extremely here is extremely narrow.

It also opined that submitted Resolution plan became a conditional resolution plan, subject to approval of RBI, the regulator of Assets Reconstruction Companies. It rejected the application on the ground that the same is “Conditional Resolution Applicant” as ARC would require prior approval from RBI under section 10(2) of the SARFAESI ACT.  It was completely ignored that the ARC viz, Invent ASR was only the Co-Resolution Applicant and the main Resolution Applicant was Longview Resources. Invent ASR, in the present case, was also not proposing to acquire any equity, unlike the case the Tribunal relied upon, Viceroy Hotels Ltd. v. Asset Reconstruction Co. (India) Ltd. This aspect was completely untouched by the NCLT.

Moreover, the order of NCLT to liquidate, without giving any opportunity to invite fresh expressions of interest to submit resolution plans. This would have provided a fair chance to Neueon Towers to undergo CIRP process. The order of liquidation is seldom a viable option.

Findings of NCLAT

NCLAT paid attention to the fact that ARC is Co-Resolution Applicant only in the capacity of payment under the plan and shall not acquire any equity rights in the corporate debtor and held that since no equity share are held by the ARC, there shall be no requirement of prior approval of RBI for participating as Co- Resolution Applicant in the Resolution Plan. Apparently, the judgement of NCLAT relied on RBI opinion in toto. It also mentioned that Adjudicating Authority ought not to have rejected the Resolution Plan, more so, when the principal objective of the Code is that ‘revival of the Corporate Debtor and Resolution’. Liquidation ought to be the last resort. NCLAT rightfully ordered to put aside the order of liquidation passed by the AA and to implement the Resolution Plan.

Having lost scope of getting any monies in return from the Liquidation, thus aggrieved by the NCLT orders, Puissant Towers filed the appeal and it was admitted. Therefore, in this way, this case also clarifies the question around the locus standi by expanding/ affirming the definition of ‘aggrieved’ as used in IBC.


The author visibly condemns the reasoning and narrow approach taken by the NCLT because of the reasons already provided above. However, there are few aspects that needs to be discussed here.

The author has inter alia criticised NCLT judgement based on ignorance of material facts. However, it is pertinent to highlight that allegedly, the facts were intentionally hidden. The clean hand doctrine which provides that one ‘who comes into equity must come with clean hands.’ This in limine question, if proved, could lead to completely different conclusion. With a presumption of lack of knowledge, NCLT decision would partly stands good in law. It is shall be duty of the RP to make the Tribunal aware of all such possibilities. This also indicate towards a significant latent function of Information Utilities.

It is now a well-settled principle under K. Sashidhar v. Indian Overseas Bank [2019] ibclaw.in 08 SC, that Adjudicating Authority may cause an enquiry into the “approved” resolution plan only limited grounds. The idea behind the value attached to the commercial wisdom of the CoC that shall be taken into consideration while adjudicating any matter. When the CoC approved the plan, it shows that there was no requirement for moving ahead with Liquidation. As also pointed out by NCLAT, the order lacked ingenuity as the commercial wisdom of the CoC must be appreciated during thee process.

It is well-settled that IBC is special law and the principle of Generalis Specialiabus Non Derogant applies. Section 238 provides an overriding effect against all laws that inconsistent with IBC and NCLAT in Encore Asset Reconstruction Company Pvt. Ltd. v. Charu Sandeep Desai [2019] ibclaw.in 57 NCLAT held that ‘SARFAESI being an existing law, Section 238 will prevail over it.’ The NCLAT decision effectively reaffirms the same.

However, a major concern remains is the time duration taken as at the outset, expeditious process is the purpose of IBC. Moreover, it also becomes a charge on the assets of the company till the matter is in the court effecting the asset maximization of assets.

A Recent Development

ARCs play a vital role in the financial sector and particularly in management of “bad-assets” of banks and other financial institutions. Considering their critical role, RBI formed a committee to undertake ‘a comprehensive review of the working of ARCs and recommend suitable measures for enabling them to function in a more transparent and efficient manner.’

In furtherance of the same, RBI has issued a Notification on 11th October 2022 allowing ARC to be a Resolution Applicant, subject to some specific conditions further depicts the legislative intent in consonance with the decision of NCLAT.


Through above analysis, the author finds merits in the decision of NCLAT in Puissant Towers India Pvt. Ltd. v Neueon Towers Ltd. & Ors. (2023) ibclaw.in 391 NCLAT while numerous issues with the order of NCLT, which was challenged herein. The author also appreciated the decision on evaluation from different lenses, which were either partially or wholly untouched in the judgement. One of the major concern was the time taken in the process which is still incomplete.



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