Banking

In a Win for Power Companies, Supreme Court Sets Aside RBI Circular on Stressed Assets

The RBI had last year asked banks to take defaulting power, sugar, shipping and other sector companies to insolvency.

In a big relief to power, sugar, shipping and other companies, the Supreme Court on Tuesday set aside a February 12, 2018 circular of the Reserve Bank of India via which the banking sector regulator had asked banks to take defaulting power, sugar, shipping and other sector companies to insolvency. A detailed copy of the judgement is awaited.

Power companies such as Essar Power, GMR Energy, KSK Energy and Rattan India Power as well as The Association of Power Producers (APP) and Independent Power Producers Association of India had in August moved the Supreme Court, challenging the constitutional validity of the February 12 circular of the RBI.

On February 12, 2018, RBI had asked banks and other lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against them in the National Company Law Tribunal (NCLT). The banking sector regulator in this circular had allowed 180 days for debt resolution, failing which the asset would have to be taken to National Company Law Tribunal (NCLT) for initiation of insolvency against them. The deadline got over on August 31, 2018.

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There were some companies which had challenged the validity of the Insolvency and Bankruptcy Code itself, while others had questioned the constitutional validity of the RBI’s February 12 circular. Power companies, however, had sought temporary relief from the circular only for themselves.

In their submissions, the power companies had alleged that RBI’s was based on a ‘one-size-fits-all’ approach without taking into consideration factors such as the reasons for non-payment.

By arrangement with Business Standard.