Interim relief on Reserve Bank of India was denied by the Allahabad High Court on deadline for finalising resolution plans for the stressed assets. According to the suggestion of the court special dispensation should be given to the central bank by the government. The high court has mandated insolvency proceedings by lenders against defaulting power projects. Executives said that insolvency proceedings, which kick in as RBI’s 180-day deadline has passed, may lead to hard times for lenders because of the low valuations of stressed projects. There are 15 days left to start the insolvency proceedings against defaulters which takes 2 months to get a case admitted to the National Law Company Law Tribunal, which gives them another opportunity to resolve the case. Even though defaulters have to be admitted within 180 days deadline being August 27th, but there has been a relaxation on this.
Rs. 17,000 crore worth plant at stake-RBI wants the apex court to transfer all the cases to itself that are filed in various high courts. New promoters have been identified to save seven commissioned power plants worth Rs. 17,000 crore. These projects have received bids that require lenders to take a 50% haircut. Around eight power plants have been admitted to NCLT and there are another 15 agaisnt which insolvency process will be initiated after the deadline. Plants of many companies including KSK Energy, Avantha Group, GMR Energy and Jaiprakash Power Ventures are being eyed by power companies and funds. Potential buyers include Adani Power, Vedanta Plc, JSW Energy, Resurgent Power and Edelweiss ARC with average bids at 50% of the project cost.
The government has never used this dispensation. During court proceedings, the government had recommended an extension of 180 days to complete resolution proceedings. RBI had sought direction from the government on stressed assets under the same section. It also said that stress in the power sector had been caused by state-run utilities being favoured at the expense of private ones.
Sinha Committee- The court has also asked the high-level empowered committee that was set up on July 29 under cabinet secretary PK Sinha to decide within two months on resolution in consultation with the RBI. The court has asked the government to include RBI representation in the high-level committee, which was set up to revive stressed thermal projects.
An executive with a public sector financial institution said that of 11 power projects identified to be resolved to be resolved through bidding, deals for at least seven had been finalised and the necessary paperwork had started. “The lenders have 15 days to initiate insolvency proceedings against the defaulting projects, while admission to NCLT these days takes two months,” a senior bank executive said. The lenders still have 2-3 months to save such projects, after admission they can withdraw the project from NCLT. It was said by the high court that if there are any urgent case, that person or company can independently approach it with all metrical facts. The power companies had moved the Allahabad High Court seeking modification in the RBI circular saying it would trigger insolvency proceedings against 30,000 megawatts of assets, causing huge value erosion.
Many projects are stressed beyond their control these include delays in land acquisition, green clearances, failure of Coal India to supply fuel and the reluctance of state distribution companies to sign power purchase agreements.
Delivering the verdict, Chief Justice Dilip B Bhosale said: “We are of the opinion that interim relief, at this stage, need not be granted. IPPA or APP are at liberty to apply for urgent interim relief if need so arises, placing the requisite factual details on record. The Central Government shall consider initiation of the consultative process contemplated under Section 7 of RBI Act, and conclude the same within 15 days from today.
“The High Level Empowered Committee shall submit its report within two months from the date of its constitution. The Ministry of Power shall invite a senior representative of the RBI, after consultation with the Governor of RBI, as a member of the High Level Empowered Committee forthwith. “This order shall not curtail the rights/powers of a financial creditor under Section 7 of the IBC or even of the RBI in issuing directions in specific case( s) under Section 35AA of BR Act to initiate corporate insolvency resolution process under Chapter II of Part II of IBC, in any given case, including the petitioners or members of the petitioners’ members of the petitioners’ Association.”
Source: Economic Times