Once Resolution Plan Is Approved By CoC And NCLT, SRA Can't Seek Its Substitution With Another Resolution Applicant: NCLAT Delhi

The SRA is an Asset Reconstruction Company and the plan submitted by it was approved by the CoC and NCLT. Thereafter, the Reserve Bank of India (“RBI”) issued a circular intimating that Asset Reconstruction Companies cannot be Resolution Applicant unless they have achieved certain net worth. Since the SRA had not achieved the net worth as required by RBI, the SRA filed an application before NCLT seeking its substitution with another resolution applicant, owing to its subsequent ineligibility to be a resolution applicant as per RBI norms. The NCLT rejected the application and NCLAT has upheld the rejection.

Background Facts

Aircel Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.

UV Asset Reconstruction Company Ltd. (“Successful Resolution Applicant/SRA”) submitted a resolution plan for the Corporate Debtor which was approved by the Committee of Creditors (“CoC”). On 09.06.2020, the NCLT also approved the resolution plan submitted by SRA.

In the meanwhile, the RBI issued a circular intimating that Asset Reconstruction Companies cannot be Resolution Applicant unless they have achieved certain net worth. Since the SRA is an Asset Reconstruction Company which has not achieved the net worth as specified by the RBI, the SRA filed an application before NCLT seeking its substitution with another entity/resolution applicant. It was submitted that the SRA is ineligible to be a resolution applicant as per RBI circular.

The RBI has also issued show cause notice to the SRA and the matter is pending adjudication before the High Court.

On 21.12.2023, the NCLT observed that it is a settled position of law that once resolution plan is approved by CoC, and submitted to NCLT for approval, the SRA cannot withdraw or modify the resolution plan. Since the SRA's plan has also been approved by the NCLT, the SRA cannot be substituted with another Resolution Applicant. The NCLT further opined that the issue of incapability of implementation of Resolution Plan without necessary approval from RBI, cannot be remedied by substitution of the Resolution Applicant. There is no provision in IBC empowering the NCLT to allow modification of the plan to substitute the resolution applicant. Accordingly, the application was dismissed.

The SRA filed an appeal before NCLAT against the NCLT order dated 21.12.2023.

NCLAT Verdict

The Bench agreed with the reasons given by NCLT for declining to substitute the SRA with another resolution applicant.

“When plan of the Appellant as Resolution Applicant was approved, the Adjudicating Authority rightly refused to substitute another Resolution Applicant, in which order no infirmity is found.”

Further, the Bench has granted liberty to the Monitoring Committee of Corporate Debtor to file an application before NCLT to find a way forward on the issue of eligibility of Resolution Applicant in view of RBI norms.

“In so far as submission of the Appellant that some way forward has to be looked into. It is always open for the Monitoring Committee as well as the Appellant to make appropriate application before the Adjudicating Authority to find out a way forward and to proceed further and it is for the Adjudicating Authority to take call on said applications and decide the same in accordance with law.”

The Bench held that after approval of a resolution plan by the CoC and NCLT, the Successful Resolution Applicant cannot be substituted with another entity/resolution applicant. Accordingly, the Bench dismissed the appeal while upholding the NCLT order.

Case title: UV Asset Reconstruction Company Ltd. & Anr. v Aircel Ltd. Through Its Monitoring Committee

Case No.: Company Appeal (AT) (Ins.) No. 333 of 2024

Counsel for Appellants: Mr. Krishnendu Datta, Sr. Advocate with Ms. Sanjukta Roy, Mr. Rajat Sinha, Advocates.

Counsel for Respondent: Ms. Misha, Ms. Charu Bansal and Ms. Mehak Nayak, Advocates.

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