NCLAT Issues Notice On REC's ₹37.48 Crore Insolvency Appeal Against Poena Power

The National Company Law Appellate Tribunal (NCLAT) at New Delhi on Thursday issued notice on an appeal by Maharatna PSU REC Limited against an NCLT order that rejected its bid to start insolvency proceedings against Poena Power Development Limited, a subsidiary of RattanIndia Power Limited, over an alleged default of about Rs 37.48 crore.

REC has challenged the NCLT's refusal to admit its Section 7 petition, which was dismissed on the ground that no legally enforceable debt had arisen. The tribunal had held that the claim stemmed from Redeemable Preference Shares (RPS) that had not become redeemable under the Companies Act, as the parent company lacked profits or funds raised through a fresh share issue.

A bench led by Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra heard the appeal briefly and issued notice to Poena Power. The company has been asked to file its reply within three weeks, with REC to respond thereafter.

The dispute goes back to a December 2019 agreement signed as part of a one-time settlement with a consortium of lenders, including REC. Under the arrangement, RattanIndia Power issued Redeemable Preference Shares worth Rs 250 crore to the lenders and assigned inter-corporate deposits owed by Poena Power to cover any shortfall if the shares were not redeemed.

When the shares were not redeemed by the December 2021 deadline, REC moved to recover its dues by invoking the ICD assignment. The NCLT, however, held that since redemption of the RPS had not become legally due, no default could be said to have occurred for insolvency purposes.

During the proceedings, Senior Advocate Sunil Fernandes, appearing for REC Limited, argued that the NCLT had erroneously conflated two separate financial instruments.

He contended that while the parent company's liability might be tied to statutory profit requirements for share redemption, the subsidiary's liability arose from an Inter-Corporate Deposit, a distinct financial debt.

The counsel submitted that the dismissal solely hinged on Clause 2.3(b) of the agreement, which stipulated that REC could only recover the “shortfall” from the subsidiary if the parent company failed to redeem the shares.

“This one single clause has been held against me to knock out my Section 7,” he argued.

Further pointing out that the ICD assignment was an independent “security” mechanism meant to protect the lender exactly in such scenarios of non-payment. Counsel emphasised that the inability of the parent to pay dividends should not absolve the subsidiary of its independent debt obligations.

The appeal will be taken up next on March 19, 2026.