[Rising NPAs] Court can't issue omnibus order to reform system: Madras High Court

A petition raising concern over the rising number of non-performing assets (NPAs) and money virtually "vanishing" from the Indian economy on Tuesday led the Madras High Court to express myriad concerns over systemic problems hindering the tackling of such issues ( Siddarth Govind v. Union of India and ors ).

. The Bench of Chief Justice Sanjib Banerjee and Justice PD Audikesavalu , however, ultimately decided to dispose of the matter by giving the petitioner the liberty to approach the Central government with focused, individual representations on specific NPAs.

. This way, the Central government can act in appropriate cases, with the seriousness it deserves, the Court opined.

. The petitioner may approach the writ court again seeking judicial review if the Central government fails to act or if there is any delay on that front, the Court added.

. " While the larger ideals that these petitions cherish to achieve may have to be pursued at an altogether differently level beyond any courtroom, the individual cases that the petitioner cites by way of example may be focused and a representation in respect of any individual entity carried to the central government for appropriate action to be taken by the Central government. Indeed, in such a scenario, the Central government would remain obliged to look into the details furnished within a reasonable time and indicate the answer and even writ jurisdiction can be invoked to expedite the process and prod the Central government to take action ...

... The larger public interest may be better served thus than by carrying an omnibus petition to address the entire the systemic issue which may be beyond the authority of the Court, certainly at this level", the Court said.

.[NPAs and Bad Loans] Union can do a lot of good if it steps in at the right time: Madras High Court. The Court also took the opportunity to highlight several systemic shortcomings when it comes to addressing NPAs and bad loans.

. One problem flagged by the Chief Justice during the hearing was the lack of political will in giving agencies such as the Serious Fraud Investigation Office (SFIO) enough teeth.

" There are several problems, including in several of the watchdogs that have been created by statute. For a start, the law behind building these institutions may be sound, but their functioning is compromised by interference at certain levels," the Court proceeded to record in its order.

. The Court added that these issues can only be tackled upon ushering in election reforms.

. " Indeed, the elephant in the room has also to be addressed: election reforms and the funding of elections. These are delicate issues that need to be addressed and the Court is scarcely the forum where the solution can be found, though the Courts remain duty-bound to raise the issue and bring them to the fore for the appropriate bodies to take notice and, if minded, introduce appropriate measures ... There are credible investigating agencies in the country, including the Serious Fraud Investigation organization. There are efficient, diligent personnel who man the policing and investigating agencies across the country but probably do not enjoy adequate room to manoeuvre … Again, these are issues that the Court can only point out but may not be equipped or authorized to address ", the order stated.

. The Court also lamented that there appears to have been no response to repeated suggestions by the judiciary to separate the investigation wing and the law and order wing of police authorities .

" It is a pity that despite two decades of the courts going like a broken record to separate the investigation wing of the police from law and order, little measures have been taken in such regard. The law declared by the Supreme Court is the law of the land and it may need a nudge to remind all authorities that they ought to abide ", the Court said.

. The case also led the Chief Justice to observe that often, it is not the viability of a business that determines whether an entity issues IPOs, but rather the market share.

Orally , he observed:

"At some time, it is going to go bust. Like Lehman brothers went, it was a subprime crisis. It was mortgage on mortgage, without any accountability … some time, it will come over here. We hope it is not today or tomorrow. We think like ostriches, thinking global warming will not affect us, this will not affect us. But global warming will hit, just like this, in a very big way."

The concern was reflected in the order dictated by the Chief Justice as well, which read:

" The immediate issues that the petitioner raises cannot be seen in isolation; just as one may wonder when the success story of non-viable business entities announcing public issues would come to an end ."

. The Court's order further noted that there were several policy interventions to tackle NPAs and bad loans. Courts were blamed in several reports which sought to park such cases with specialised bodies, starting with the Debt Recovery Tribunal, and, thereafter the SARFAESI Act, it was observed.

However, " lakhs of crores of NPAs remain ", the Court pointed out.

"The introduction of the Insolvency and Bankruptcy Code of 2016 may have, in theory, expedited the process after, again blaming courts while taking out a further chunk of matters from the court system to a so called specialized tribunal," the Bench added.

. The Court went on to observe that if law exists, " the Court need not reinvent the wheel and ask the Union to act in accordance therewith, when the Union is already obliged to act in such manner. "

. " An omnibus order to reform the system cannot be sought at this level and given the current trend of the diminution of authority of the High Courts, it may not even be taken seriously," the Court said.

. The 2018 petition had called for the Court to direct the Central government to initiate amalgamation proceedings under Section 237 of the Companies Act, 2013 against in relation to five defaulter-companies - Essar Steel India ltd., Videocon Industries Ltd, GVK Gautami Power, Kingfisher Airlines Ltd. and Electrosteel Steels Ltd. Advocate Nithyaesh Nataraj appeared for the petitioner.

. Appearing for the Central government on Tuesday, Additional Solicitor General General R Sankaranarayanan informed the Court that three of the mentioned companies are undergoing the insolvency process. He added that the Central government was also keen to act against NPAs and that it would agree with the petitioner's suggestions in principle. However, he highlighted certain practical difficulties in carrying out the same.

. In this regard, he highlighted that the Centre's move to amalgamate in the 63 moons case was ultimately set aside by the Supreme Court. He added that even the SFIO would vouch that at least three cases that commenced in 2010 are still pending before the High Court.

. The Court, in turn, took on record the Centre's concern that acting against NPAs invoking Companies Act provisions, would hinge on the material on record.

. "The Union asserts that it may be counterproductive if the Union sends out a signal that it is so proactive that it interferes with the functioning of private entities on a mere suspicion or a token complaint. However, the instances that the petitioner refers to may not necessarily refer to token complaints or needless adventurism by the Central government. Indeed, some of the obvious gaps may have been prevented or arrested in their infancy if the central govt had been more vigilant. At least that is the case that the petitioner has made out and wants the Court to believe," the Court recorded.

. [Read Order]

[Rising NPAs] Court can't issue omnibus order to reform system: Madras High Court

Meera Emmanuel

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