The government will conduct a study to find out the number of cases that have been impacted by the Supreme Court’s judgement on Tuesday, which quashed the central bank’s February 12, 2018 circular on stressed asset resolution.
“We will have to carry out a study to see how many cases totally get affected,” corporate affairs secretary Injeti Srinivas told FE. Lenders will be asked if they invoked proceedings under the Insolvency and Bankruptcy Code on their own volition or they were forced to do so (in certain cases) due to the stipulation under the RBI’s February 12 circular, he said.
When asked about the impact of the verdict on the new insolvency law, Srinivas said: “It does not in any manner dilute the IBC”.
Declaring the circular ultra vires, the SC has held that the Section 35AA introduced by the government in the Banking Regulation Act (which the RBI used to issue the circular) allows directions that “can only be in respect of specific defaults by specific debtors” and not for debtors generally. It has also viewed that specific cases of default can be recommended for proceedings under the
Insolvency and Bankruptcy Code (IBC) only with the central government’s authorisation.
Scrapping earlier debt-restructuring schemes like CDR, SDR and S4A, the RBI’s February 12 circular had stipulated a one-day default rule on term loans, mandating that a borrower who missed repayment even for a day be treated as a ‘defaulter’. It added that banks would have to finalise a resolution plan for such defaults of over `2,000 crore within 180 days and if they failed in doing so, the account would be subject to the IBC process.
Among the immediate beneficiaries of the SC order are the promoters of nearly three dozen stressed power sector assets with a combined capacity of over 40,000 MW and a debt exposure of some `2 lakh crore and those of a clutch of sugar and shipping firms. Rating agency Icra had earlier said the RBI circular required as many as 70 large corporate accounts, with loans worth `3.8 lakh crore, to come up for IBC resolution by September 1, 2018. The ruling will also provide relief to promoters of some of those firms where banks had to invoke the IBC merely due to the RBI circular.
Srinivas said the relevant part of the RBI circular, which says that if the resolution does not take place within 180 days, banks have no other option but to go to the NCLT, has been declared ultra vires.
The secretary stressed that the prerogative of the banks to choose between SARFAESI Act, IBC or any other resolution tool remains with them.
Source: Financial Express, April 5, 2019