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The Supreme Court has asked the RBI, banks and others to refrain from taking any actions pursuant to the February 12 circular issued by the RBI.
The Allahabad High Court had last week rejected interim relief to the power sector from the applicability of the RBI Circular.
“Status quo, as of today, shall be maintained in the meantime”, ordered a bench of Justice Rohinton Nariman and Justice Indu Malhotra. This order is in response to a transfer petition filed by the RBI in view of the multiple challenges to the said circular across various high courts.
The RBI had on 12 February issued a circular scrapping all extant restructuring schemes and asked the lenders of (identified) stressed companies to resolve such accounts within 180 days. Under the circular, companies which were unable to implement a resolution plan by August 27, 2018, were scheduled to be referred to NCLT under Insolvency and Bankruptcy Code (IBC) by 11th September.
The lobby groups for the power sector have challenged the said circular and have argued that due to their peculiar situation, they cannot be treated similarly as all other sectors. They assert that they are heavily regulated and have been facing stress due to factors which are beyond their control, such as non-availability of fuel and cancellation of coal blocks.
The Allahabad High Court did not find merit in their arguments and refused to offer any relief against the circular. Similar petitions were moved at the Madras High Court and the Delhi High Court.
The Supreme Court has now transferred all pleas filed before the various High Courts to itself while asking the RBI and parties to maintain status quo with regards to insolvency proceedings. This status quo order now puts a halt to the proceedings to be initiated pursuant to the circular.
The status quo will extend to parties before the Supreme Court including members of the lobby groups. The Supreme Court order operates as a standstill insofar as NCLT proceedings are concerned. Therefore, where banks had not filed NCLT proceedings until communication of the Supreme Court Order by respective borrowers, banks ought to have held back on filing.
In cases where the petition has already been filed, the Supreme Court order will interdict any further proceedings in the matter including admission of petitions before NCLT. This may also be extended to other actions initiated by the banks including debt recovery proceedings as well as actions against sponsors and guarantors.
This also gives time to the High-Level Empowered Committee (HLEC) formed by the government in July this year to address the issues of the thermal power sector. The Committee is expected to submit its report by end of September. The HLEC chaired by the Cabinet Secretary comprises of 10 other members from different ministries, banking institutions as also the Power Finance Corporation and the Rural Electrification Corporation. RBI is conspicuously absent from the HLEC.
But at the same time, this creates considerable confusion for companies which are already under resolution process pursuant to the circular. According to a statement issued by J. Sagar Associates,
“However, resolution processes already underway should and ought to continue, notwithstanding status / pendency of a petition before NCLT. This is in line with the principal objective of the RBI Circular of resolving stressed assets and will be in the interest of the lenders as well as the economy. Banks and financial institutions are unclear as to whether they can go ahead with ongoing resolution processes given that the cut-off date under the 12th February Circular was 27th August.
Given that the IBC route mandated by RBI is foreclosed for the time being, it is important for the RBI provide clarity so as to enable lenders to continue with the resolution process within the framework of the 12th February Circular. Putting a halt to these proceedings until November will not only be counter-productive but may result in further value erosion”
The case has been listed for November 14, 2018, for final disposal.
Senior Advocate Sajan Poovayya argued on behalf of GMR, Essar and Rattan India and Ideal Energy Limited while Senior Advocate Mukul Rohatgi appeared for SKS Power Generation (Chattisgarh) Ltd.
Senior Advocate Abhishek Manu Singhvi along with Senior Advocate Sajan Poovayya, briefed by Link Legal India Law Services represented Independent Power Producers Association of India and GMR. The Link Legal team comprised Managing Partner Atul Sharma, Partner Milanka Chaudhury, Associate Partner Sarojanand Jha and Senior Associate Ashly Cherian.
Advocate Mahesh Agarwal is representing GMR Energy and RattanIndia Power
J. Sagar Associates (JSA) represented Association of Power Producers, GMR and RattanIndia before Allahabad High Court and the Supreme Court. The JSA team comprised Senior Partner Amit Kapur, Partner Vishrov Mukerjee and Associates Catherine Ayallore and Ameya Vikram Mishra.
(Read the order)