Delhi High Court
Uv Asset Reconstruction Company ... vs Union Of India & Ors. on 18 March, 2021
Equivalent citations: AIRONLINE 2021 DEL 382
Author: Prathiba M. Singh
Bench: Prathiba M. Singh
Digitally Signed By:DINESH
SINGH NAYAL
Signing Date:22.03.2021 12:44:36
$~15
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 18th March, 2021
+ W.P.(C) 9537/2020, CM APPLs. 30583/2020 & 4927/2021
UV ASSET RECONSTRUCTION COMPANY
LIMITED ..... Petitioner
Through: Mr. Sandeep Sethi, Sr. Advocate with
Mr. Dhruv Dewan, Ms. Harshita
Choubey & Ms. Chandni Ghatak,
Advocates (M-9999776655)
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Tushar Mehta, SG for with Mr.
Ramesh Babu MR, Ms. Manisha
Singh, Ms. Sanya Panjwani & Ms.
Tanya Chowdhary, Advocates for R-
2/RBI.
Mr. Ravi Prakash, CGSC with Mr.
Jitendra Kumar Tripathi, GP (M-
9990952670)
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (ORAL)
1. The present petition raises an important issue as to the role of an Asset Reconstruction Company under the Insolvency and Bankruptcy Code (hereinafter, "IBC"), in the context of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter 'SARFAESI Act').
2. Under the IBC, sub clause (d) of Explanation II r/w the Provisos to Explanation 1, under section 29A(j), in effect, does not prohibit an Asset Reconstruction Company from submitting a resolution plan. On the other hand, under Section 10 of the SARFAESI Act, for an Asset Reconstruction Company to conduct any business apart from securitization or assets W.P.(C) 9537/2020 Page 1 of 5 Digitally Signed By:DINESH SINGH NAYAL Signing Date:22.03.2021 12:44:36 reconstruction, prior approval of the Reserve Bank of India is required. The said two provisions are set out below:
"Insolvency and Bankruptcy Code "29A. A person not be eligible to be resolution applicant - A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person - ....
(j) has a connected person not eligible under clauses
(a) to (i).
[Explanation I] - For the purposes of this clause, the expression "connected person" means -
(i) any person who is the promoter or in the management or control of the resolution applicant; or
(ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or
(iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii):
[Provided that nothing in clause (iii) of this Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor: Provided further that the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt equity shares or instruments convertible into equity shares [or completion of such transactions as may be prescribed,] prior to the insolvency commencement date;] [Explanation II - For the purposes of this section, "financial entity" shall mean the following entities W.P.(C) 9537/2020 Page 2 of 5 Digitally Signed By:DINESH SINGH NAYAL Signing Date:22.03.2021 12:44:36 which meet such criteria or conditions as the Central Government may, in consultation with the financial sector regulator, notify in this behalf, namely:- ...
(d) an asset reconstruction company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruciton of Financial Assets and Enforcement of security Interest Act, 2002 (54 of 2002)";
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 "10. Other functions of [asset reconstruction company]. - (1) Any [asset reconstruction company] registered under section 3 may -
(a) act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fees or charges as may be mutually agreed upon between the parties;
(b) act as a manager referred to in clause (c) of sub-
section (4) of section 13 on such fee as may be mutually agreed upon between the parties;
(c) act as receiver if appointed by any court or tribunal;
Provided that no [asset reconstruction company] shall act as a manager if acting as such gives rise to any pecuniary liability.
(2) Save as otherwise provided in sub-section (1), no [asset reconstruction company] which has been granted a certificate a registration under sub-section (4) of section 3, shall commence or carry on, without prior approval of the Reserve Bank, any business other than that of securitisation or asset reconstruction; Provided that a [asset reconstruction company] which is carrying on, on or before the commencement of this Act, any business other than the business of securitisation or asset reconstruction or business W.P.(C) 9537/2020 Page 3 of 5 Digitally Signed By:DINESH SINGH NAYAL Signing Date:22.03.2021 12:44:36 referred to in sub-section (1), shall cease to carry on any such business within one year from the date of commencement of this Act.
Explanation. - For the purposes of this section, [asset reconctruction company] or [asset reconstruction company] does not include its subsidiary."
3. This issue has arisen in the context of the Petitioner Company which is an asset reconstruction company, participating in the Corporate Insolvency Resolution Process of Aircel entities i.e. Aircel Limited, Dishnet Wireless Limited and Aircel Cellular Limited, before the NCLT. The resolution plan submitted by the Petitioner is stated to have already been approved by the NCLT, vide order dated 9th June, 2020 in CP (IB) No.298/MB.II/2018 and connected applications. The NCLT had, vide the said order, directed the Petitioner to obtain an approval of the Reserve Bank of India. The order of the NCLT reads:
"6.6.2. The RA is an asset reconstruction company, having been licensed to act as such by RBI. Hence, RA will require approval of RBI to acquire shares in the corporate applicants. The RA submits that it shall apply for such approval after the Resolution Plan is approved by this Adjudicating Authority."
The Reserve Bank India denied the approval and a show cause notice has been issued on 12th November, 2020, as to why action ought not to be taken for violating section 10 of the SARFAESI Act. It is this show cause notice, issued by the Reserve Bank of India, which has been challenged by the Petitioner in the present petition. Vide order dated 27th November 2020, the show cause notice dated 12th November 2020 was stayed by this Court.
W.P.(C) 9537/2020 Page 4 of 5Digitally Signed By:DINESH SINGH NAYAL Signing Date:22.03.2021 12:44:36
4. The Reserve Bank of India, represented by Mr. Mehta, ld. Solicitor General, has taken a stand that the prior approval of the Reserve Bank of India would be required before submitting a Resolution Plan, and since the said approval was not obtained by the Petitioner, the Resolution Plan submitted by the Petitioner is invalid in law.
5. Mr. Prakash, ld. Standing Counsel for the Union of India, submits that the decision on this issue involves two Ministries, namely, the Department of Financial Services under the Ministry of Finance, and the Ministry of Corporate Affairs. He therefore seeks time to file the stand of the two Ministries on record.
6. The issues raised in this petition are of importance inasmuch as they would involve the reconciliation of the provisions of the SARFAESI Act and the IBC set out above. Considering that the role of Asset Reconstruction Companies in resolution/liquidation processes under the IBC, has arisen for determination, it is deemed appropriate to direct that the officials of the Respondent No. 1 - Department of Financial Services, Ministry of Finance and the Ministry of Corporate Affairs shall arrive at a consensus and file a common affidavit after consulting with the officials of the Reserve Bank of India, on the said issue.
7. Let the said affidavit be filed within four weeks as a last opportunity.
8. List on 19th May, 2021. Interim orders to continue in the meantime.
PRATHIBA M. SINGH JUDGE MARCH 18, 2021 Rahul/ Ak W.P.(C) 9537/2020 Page 5 of 5