Inapplicable RBI circular cannot by itself defeat a Section 7 insolvency application where restructuring began earlier.

An application under Section 7 of the Insolvency and Bankruptcy Code could not be rejected merely on the footing that it was filed pursuant to the RBI circular dated 12.02.2018. The circular applied only to large accounts with aggregate exposure of Rs. 2,000 crore and above on or after 01.03.2018, while the debt here was below that threshold and the restructuring process had already begun before the circular. Reference to the new RBI guidelines in meeting minutes did not show that the application was filed solely because of the circular. As the circular was inapplicable on the facts, the ratio in Dharani Sugars did not govern, and rejection on that ground alone was unsustainable.

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Issues: Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was liable to be rejected as having been filed pursuant to the Reserve Bank of India circular dated 12.02.2018, and whether the principle laid down in Dharani Sugars applied.

Analysis: The impugned circular applied to large accounts with aggregate exposure of Rs. 2,000 crore and above on or after 01.03.2018. The debt in question was below that threshold, and the material on record showed that the restructuring process and lenders' deliberations had commenced before the circular. Mere reference in the minutes to the new RBI guidelines did not establish that the Section 7 application was filed only pursuant to the circular. Since the circular itself was not applicable on the facts, the ratio in Dharani Sugars did not govern the case. The Adjudicating Authority, therefore, could not reject the insolvency application on that ground alone.

Conclusion: The rejection of the Section 7 application on the ground that it was initiated pursuant to the RBI circular was unsustainable.

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