Insolvency initiation rights upheld as banks may file independently and RBI directions remain within statutory power.

RBI's press release and directions to banks for initiating insolvency action against identified stressed accounts were upheld as a valid classification based on objective financial criteria, and not arbitrary, discriminatory, or ultra vires. The Court further held that a banking company could independently invoke Section 7 of the Insolvency and Bankruptcy Code, 2016, and that Section 35AA of the Banking Regulation Act, 1949 does not exclude that statutory right. It also refused to restrain the NCLT or the private bank, since no lack of jurisdiction, natural justice breach, or constitutional invalidity was shown.

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Issues: (i) Whether the Reserve Bank of India's press release and consequential directions to banks to initiate insolvency proceedings against identified stressed accounts were arbitrary, discriminatory, or ultra vires; (ii) whether a banking company could independently initiate proceedings under the Insolvency and Bankruptcy Code, 2016 without a separate direction from the Reserve Bank of India; (iii) whether a writ of prohibition or similar relief could be granted to restrain the National Company Law Tribunal or the private bank from proceeding under the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the Reserve Bank of India's press release and consequential directions to banks to initiate insolvency proceedings against identified stressed accounts were arbitrary, discriminatory, or ultra vires.

Analysis: The challenge to the press release was tested mainly on the grounds of Article 14 and the scope of powers conferred by Section 35AA and Section 35AB of the Banking Regulation Act, 1949. The classification adopted by the Reserve Bank of India was based on objective financial criteria, namely the size of exposure and the extent and persistence of non-performing status. The Court accepted that the purpose of the measure was to address large stressed assets and expedite recovery through the statutory insolvency framework. It held that the impugned communication could not be treated as an irrational or hostile classification merely because it first targeted the largest and longest-standing stressed accounts. The Court also noted that the Reserve Bank of India was required to act consistently with constitutional mandates and not by way of advice to adjudicatory bodies, but the direction to banks itself was within statutory power.

Conclusion: The challenge to the Reserve Bank of India's press release and directions failed. The measure was not held to be arbitrary, discriminatory, or beyond power.

Issue (ii): Whether a banking company could independently initiate proceedings under the Insolvency and Bankruptcy Code, 2016 without a separate direction from the Reserve Bank of India.

Analysis: The Court held that initiation of insolvency proceedings is a statutory right of a financial creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016, subject to the statutory conditions and scrutiny by the adjudicating authority. Section 35AA of the Banking Regulation Act, 1949 was treated as enabling the Reserve Bank of India to direct banks to initiate insolvency proceedings in appropriate cases, but not as a provision that extinguishes the independent statutory right of a bank to proceed under the insolvency code. The insolvency statute was also read as a complete code with its own consequences, including admission, moratorium, appointment of an interim resolution professional, and participation of the corporate debtor in the resolution process. The merits of the underlying restructuring dispute were left for the adjudicating authority.

Conclusion: A banking company was held entitled to initiate proceedings under the Insolvency and Bankruptcy Code, 2016 independently of the Reserve Bank of India's direction.

Issue (iii): Whether a writ of prohibition or similar relief could be granted to restrain the National Company Law Tribunal or the private bank from proceeding under the Insolvency and Bankruptcy Code, 2016.

Analysis: The Court found no basis to prohibit the National Company Law Tribunal from proceeding because the tribunal was the statutory adjudicating authority under the insolvency regime and no want of jurisdiction, violation of natural justice, or constitutional invalidity was established. It further held that no writ could issue against the private bank in the facts of the case, and that the bank's proceedings could not be interdicted merely because the petitioner disputed the wisdom or timing of the insolvency route. The Court emphasized that the question whether the insolvency application should be admitted, and on what terms the restructuring materials should be considered, was for the adjudicating authority to decide according to law.

Conclusion: The request to restrain the adjudicating authority and the private bank from proceeding under the insolvency code was rejected.

Final Conclusion: The petition failed on all substantial challenges. The impugned regulatory action was upheld in principle, the lenders were permitted to proceed under the insolvency statute, and the court declined to interfere with the pending insolvency process.

Ratio Decidendi: A financial creditor may independently invoke Section 7 of the Insolvency and Bankruptcy Code, 2016, and a Reserve Bank of India direction under Section 35AA of the Banking Regulation Act, 1949 does not render such statutory initiation invalid; judicial interference is not warranted unless the regulatory or adjudicatory action is shown to be without jurisdiction, unconstitutional, or manifestly arbitrary.

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