NCLAT Upholds Assignment of Unsustainable Debt to Resolution Applicant; Finds No Violation of SARFAESI Section 9(1)(e) & RBI Clause 10.1(v) [Read Order]
The Tribunal found no contravention of the RBI's Master Directions or the SARFAESI Act.
![NCLAT Upholds Assignment of Unsustainable Debt to Resolution Applicant; Finds No Violation of SARFAESI Section 9(1)(e) & RBI Clause 10.1(v) [Read Order]](https://images.taxscan.in/h-upload/2025/06/27/2055170-nclat-debt-sarfaesi-section-91e-rbi-clause-taxscan.webp "NCLAT Upholds Assignment of Unsustainable Debt to Resolution Applicant; Finds No Violation of SARFAESI Section 9(1)(e) & RBI Clause 10.1(v) [Read Order]")
The National Company Law Appellate Tribunal (NCLAT) upheld the assignment of unsustainable debt under the resolution plan, finding it in compliance with Section 9(1)(e) of the SARFAESI Act and Clause 10.1(v) of the RBI Master Directions, 2024. The Tribunal held that such an assignment does not violate the provisions of the Securitisation and Reconstruction of Financial Assets...
The National Company Law Appellate Tribunal (NCLAT) upheld the assignment of unsustainable debt under the resolution plan, finding it in compliance with Section 9(1)(e) of the SARFAESI Act and Clause 10.1(v) of the RBI Master Directions, 2024. The Tribunal held that such an assignment does not violate the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, or the Insolvency and Bankruptcy Code(IBC), 2016.
The appeal has been filed by Alchemist Asset Reconstruction Company Ltd., the dissenting financial creditor has filed this appeal challenging the NCLT’s order dated 22.01.2025, which approved the resolution plan of OCL Iron and Steel Ltd (successful resolution applicant) and rejected the application of Gateway Investment Management Services Ltd (unsuccessful resolution applicant).
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The appellant had challenged the assignment on the ground that the ARC, governed by the SARFAESI Act and regulated by the RBI (Asset Reconstruction Companies) Master Directions 2024, was not permitted to transfer debt to a non-ARC.
It was argued by the counsel that the Master Directions restrict ARCs from assigning acquired debt except to another ARC. It was further contended that the resolution plan envisaging such assignment was contrary to the RBI framework and statutory mandate.
It is to note that the resolution plan in question categorized the financial debt into sustainable and unsustainable portions, with the sustainable part proposed to be paid upfront to financial creditors and the unsustainable portion to be assigned to the Resolution Applicant. This plan was approved by the Committee of Creditors (CoC) with a 73.38% majority.
The tribunal, after going through Section 9(1)(e) of the SARFAESI Act and Clause 10.1(v) of the RBI-Master Directions, held that the ARC’s action constituted a valid “settlement of dues”, which is a permissible reconstruction measure under law. The Tribunal observed that the term “settlement of dues” is of wide import and can include various modes, including assignment, provided it forms part of a commercial plan duly approved under the IBC process.
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The Tribunal found no contravention of the RBI's Master Directions or the SARFAESI Act. NCLAT concluded that the plan complied with all regulatory provisions
The tribunal comprising Justice Ashok Bhushan (Chairperson), Arun Baroka (Technical Member), and Barun Mittal (Technical Member) also dismissed the appeal.
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