Mumbai, Jan 13: The National Company Law Tribunal (NCLT) has allowed an application filed by Punjab National Bank (PNB) and directed the Resolution Professional (RP) of Arshiya Limited to treat the bank as a secured financial creditor in the ongoing corporate insolvency resolution process (CIRP) of the company.
NCLT sets aside RP’s reclassification
In its order dated January 12, 2026, the Bench comprising Technical Member Prabhat Kumar and Judicial Member Sushil Mahadeorao Kochey set aside the RP’s decision to reclassify PNB as an unsecured financial creditor and held that the reclassification was beyond the RP’s authority.
PNB had moved the Tribunal under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, challenging the RP’s action during the fifth meeting of the Committee of Creditors (CoC) in November 2024, where its claim was shifted from “secured” to “unsecured”.
The bank argued that its exposure was secured through a share pledge agreement dated September 9, 2010, and supported by an irrevocable corporate guarantee issued by Arshiya’s predecessor entity.
Background of the dispute
The dispute arose in connection with credit facilities extended to Arshiya Northern FTWZ Limited (ANFL), a subsidiary of Arshiya Limited. PNB, part of a banking consortium, had extended loans aggregating over Rs 280 crore to ANFL, backed by pledged shares representing 51 per cent of ANFL’s equity and corporate guarantees.
Following defaults, the account was classified as a non-performing asset in 2014, and recovery proceedings were initiated before the Debt Recovery Tribunal.
While the Interim Resolution Professional had initially recognised PNB as a secured financial creditor, the subsequently appointed RP relied on legal opinions and Supreme Court judgments to reclassify the claim as unsecured, contending that a pledge of shares did not involve direct disbursement to Arshiya Limited.
Tribunal’s observations
Rejecting this move of the RP, the NCLT relied on precedents of the NCLAT, including Rajnish Jain v. Manoj Kumar Singh and Byju Raveendran v. Aditya Birla Finance, to hold that an RP cannot unilaterally change the status of a creditor once claims are categorised.
The Tribunal further held that, on merits, PNB was entitled to be recognised as a secured financial creditor, as it simultaneously held a security interest and guarantee obligations in respect of the same debt.
“The reclassification done by the RP is without any authority vested in him and, in doing so, he has exceeded his powers,” the Bench observed, while directing immediate correction of CIRP records and the list of creditors.
The Tribunal held that the pledge agreement and corporate guarantee extended to the restructured credit facilities, and that the applicant’s original individual facility merged into the consortium arrangement, as reflected in the distinct allocation of credit among consortium members.
It noted that the applicant had not filed multiple claims for the same debt. Although Arshiya Limited was not a party to the Master Restructuring Agreement dated September 28, 2013, its predecessor, Arshiya International Limited, had executed a corporate guarantee for the restructured debt, which became binding on the Corporate Debtor after the merger.
Also Watch:
Accordingly, the Tribunal held that the applicant’s position must be assessed holistically, entitling it to the benefit of its security interest and participation in collective decision-making, and classified the applicant as a secured financial creditor based on its concurrent security interest and guarantee obligations for the same debt.
To get details on exclusive and budget-friendly property deals in Mumbai & surrounding regions, do visit: https://budgetproperties.in/
