The recent historic acquisition of the Jhabua Powerplant by National Thermal Power Corporation Limited (NTPC) was followed by a challenge by one of the promoters of the corporate debtors. We will explore the issues involved and the observations by the NCLAT clarifying the law on resolution applications under the CIRP.
Facts of the Historic Acquisition By NTPC Of Jhabua Power Plant
The NCLAT has thoroughly described the working of Section 12A IBC in Avantha Holding Limited Judgment. The brief facts of the case are that Avantha Holding Private Limited was a promoter of the corporate debtor i.e., Jhabua Power Limited held 17.9% shares in the corporate debtor. It filed an application seeking disqualification of the resolution applicant under section 29A of the IBC and also to set-aside decision of the CoC rejecting the proposal of the appellant. The NCLT, Kolkata Branch dismissed the application and therefore, an appeal was filed before the Appellate authority.
Issues at hand
The appellant (herein the promoter) submitted a one-time settlement (OTS) to the Resolution professional (RP), which was rejected by the Committee of creditors (CoC) for being commercially unviable. It also challenged the no-due certificates submitted by entities connected to NTPC in order to prove its ineligibility under section 29A of the code.
Interpretation of section 12A
NCLAT has categorically observed that Section 12A of the IBC does not entitle the promoter of corporate debtors to submit a settlement plan in the capacity of financial creditors. In this case, there was also never an approval by the CoCof the settlement plan submitted by the appellant. Under the mandate of Section 12A of the IBC, 90% of the CoC votes must fall in favour of the application for the CIRP to collapse.
Section 29A of the IBC lays down the conditions under which resolution applicants are disqualified to submit a resolution plan:
(a) is an undischarged insolvent;
(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of
India issued under the Banking Regulation Act, 1949 (10 of 1949);
(c) at the time of submission of the resolution, the plan has an account,] or an account of
a corporate debtor under the management or control of a such person or of whom such
a person is a promoter, classified as a non-performing asset in accordance with the
guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949
or the guidelines of a financial sector regulator issued under any other law
for the time being in force,] and at least a period of one year has elapsed from the date of
such classification till the date of commencement of the corporate insolvency resolution
process of the corporate debtor;
Whether entities connected to NTPC qualified under section 29A of IBC
The appellant raised a pertinent issue before the appellate tribunal. It contended that the connected parties RGPPL and KLL were classified as Non-performing Assets (NPA) and hence, were disqualified.
The NCLT held that parties subsidiary to NTPC were declared as NPA with effect from 2009. The NCLAT however, held that the same does not suffice for an entity being classified as NPA. The ‘classification of NPA’ notice came into effect only in 2019, which meant that not even one year had passed until the submission of the resolution plan by the resolution applicant i.e., RGPPL and KLL. This was relevant for the purpose of section 29A of the IBC since the applicant could not be deemed to be disqualified. One of the conditions with respect to disqualification of a resolution applicant is when
“Such persons are classified as non-performing assets in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949”
An asset cannot be classified as a sub-standard asset if it does not remain an NPA for more than 12 months. In this case, RGPPL and KLL’s classification as NPA had not passed the period of 12 months when the application for the resolution plan was submitted to them. Hence, they were not disqualified under Section 29A of the code from submitting the resolution plan, NCLAT observed.
The NCLAT reiterated the observations in the Hon’ble Supreme Court’s decision in Arun Kumar Jagatramka’s judgment:
“As explained above, the stages of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages.”
NTPC acquisition of Jhabua powerplant: historic acquisition
This order comes after the historic acquisition of NTPC of the Jhabua Powerplant for Rs 925 crore, which is its first such deal through insolvency proceedings. This order came as a confirmation of the marquee acquisition. This is the first acquisition of a power asset by NTPC through the NCLT route. After the acquisition of JPL, NTPC has become a 70 GW-plus company with a total installed capacity of 70,064 MW.
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