Allahabad HC makes no exceptions for Power Sector when it comes to IBC
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Allahabad HC makes no exceptions for Power Sector when it comes to IBC

Varun Marwah

The Allahabad High Court bench of Chief Justice Dilip Bhosale and Justice Yashwant Varma has recently refused to grant interim relief to the power sector from IBC proceedings.

While the matter is pending final adjudication, including a decision on the larger issue of the vires of Sections 35AA and 35AB of the Banking Regulations Act (inserted by Ordinance in 2017), the High Court has made clear its stance that no exceptions can be carved out.

Two lobby groups from the power sector challenged the February 12 circular by RBI which gave ‘large accounts’ which are under stress, 180 days to resolve, failing which the banks were directed to proceed against such companies under the IBC.

Appearing for the lobby groups, Senior Counsel Abhishek Manu SinghviSajan Poovayya and Navin Sinha briefed by Praxis Counsel, Linklegal and J Sagar Associates argued that due to several reasons beyond their control, such as non-availability of fuel, cancellation of coal blocks, lack of enough PPA by States, these companies were under stress and that 180 days was not enough time for them to resolve their accounts.

They relied on two standing committee reports of the Parliament, one which took cognizance of the February 12 circular and one which didn’t, to substantiate their claims and demanded a separate exception be carved out for them due to the nature of the industry and the regulatory hurdles vis-a-vis other sectors. The lobby groups also said that Section 7 of the RBI Act may be used to carve out an exception for the Power Sector.

They further challenged the RBI diktat as being violative of Article 14 of the Constitution, for painting the heavily regulated power sector and other (lesser regulated) sectors with the same brush. They also challenged the process followed by the RBI, which required independent credit evaluation, by arguing that list of credit rating agencies was only notified 100 days after the Feb 12 circular. It was also argued that the IBC only focuses on capital structure resolution and sectoral challenges cannot be addressed through IBC and thus resolution may not be forthcoming.

While arriving at its decision, the Court observed the extent to which Parliamentary Committee Report can be relied on during judicial proceedings. It found that its job is not to adjudicate on the validity of the report but how much it can be relied on for the purpose of adjudication of the dispute in hand, which may vary from case to case. With a small portion devoted to the factual aspects of the reports, the judgment ended with references to it there.

While refusing to interfere with the decision of the RBI, the Court held a view which the Indian judiciary has held several times before in a similar context,

The powers of the RBI cannot be either curtailed or interfered with in any manner. The matters of economic policy should be best left to the wisdom of the legislature and in policy matters the accepted principle is that the courts should not interfere.

However, at the same time, the Court also expressed that there should be unanimity amongst the different arms of the Government on dealing with such crucial issues, like a timeline for resolution. While doing so, the Court also left the question of whether RBI can consider factors other than financial (such as operational and regulatory) while issuing directions to banks to be decided at a later stage.

What is clear from the ruling is that the lobby groups continued to narrate the practical difficulties in implementation of the RBI roadmap. Whereas appearing for RBI, ASG Tushar Mehta and Senior Counsels Ravi KadamRakesh Dwivedi and Anurag Khanna kept on throwing various statistics and numbers of rising level of NPAs in India.

For the better or for the worse, this is a stance taken by the Indian judiciary on many occasions, of refusing to interfere with RBI mandate. Even without the RBI directive, there is nothing that stops banks from proceeding against such defaulters.

Some may argue that that adopting a singular approach for all sectors is not fair or reasonable, to begin with, but the flip side to it is that if an exception is carved out for one, there is nothing that stops others from demanding the same. To that extent, the Allahabad High Court has taken a strong ground and upheld the spirit of IBC.

Read the Judgment:

Power-Producers-Allahabad-HC-Judgment.pdf
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