2021 (12) TMI 1513 - SCH - Indian Laws

Bank not obligated under RBI Master Circular paragraph 6.4 for debt assignment recovery claims

GTL INFRASTRUCTURE LIMITED Versus CANARA BANK & ORS.

SC dismissed appellant's challenge regarding bank obligations under RBI Master Circular paragraph 6.4 dated July 1, 2015 concerning prudential norms for ... Compliance with paragraph 6.4 of the Master Circular dated July 1, 2015 issued by the Reserve Bank on Prudential Norms on Income Recognition Assets Classification and Provisioning Pertaining to Advances and execute agreements assigning their respective debts in favour of Respondent No.7 - recovery of purported dues under the financial facilities granted by the Respondent Nos. 1 to 6 - HELD THAT:- The High Court was right in holding that there would be no obligation upon the bank/FI in terms of paragraph 6.4 (d)(ii) as was contended on behalf of the appellant. Thus the High Court was absolutely right and justified in rejecting the claim made on behalf of the appellant. There are no reason to entertain this appeal, which is accordingly dismissed without any order as to costs. Issues Involved:1. Interpretation of Paragraph 6.4 of the Master Circular dated July 1, 2015, issued by the Reserve Bank of India regarding the sale of financial assets by banks/financial institutions.2. Obligations of banks/financial institutions under the Prudential Framework for Resolution of Stressed Assets dated June 7, 2019, issued by the Reserve Bank of India.3. Whether banks/financial institutions can be compelled to accept a Resolution Plan or settlement proposed by a debtor.Issue-wise Detailed Analysis:1. Interpretation of Paragraph 6.4 of the Master Circular:The appellant challenged the High Court's decision, which rejected the claim that Paragraph 6.4(d)(ii) of the Master Circular created a mandatory obligation for remaining banks/financial institutions to accept an offer if 75% (by value) of banks/financial institutions decided to do so. The appellant argued that the remaining banks were obligated to accept the offer once the threshold was met. However, the High Court concluded that Paragraph 6.4(d)(i) clearly stated that each bank/financial institution must independently assess the value offered by the Securitisation Company/Reconstruction Company (SC/RC) and decide whether to accept or reject the offer. Thus, the High Court held that there was no obligatory duty on the banks/financial institutions as contended by the appellant. The Supreme Court affirmed this view, finding no reason to interfere with the High Court's decision and dismissed the appeal.2. Obligations under the Prudential Framework for Resolution of Stressed Assets:The appellant sought relief based on paragraphs 9 and 10 of the Prudential Framework for Resolution of Stressed Assets, which required lenders to have Board-approved policies for resolving stressed assets and to enter into an inter-creditor agreement (ICA) for implementing a Resolution Plan. The High Court examined whether these provisions imposed an obligation on lenders and whether Canara Bank (Respondent No.7) was justified in initiating proceedings under the Insolvency and Bankruptcy Code (IBC). The High Court concluded that the relief sought by the appellant could not be granted, as the provisions did not mandate acceptance of a Resolution Plan by the lenders. The Supreme Court agreed with the High Court's conclusions, affirming that the lenders could not be compelled to accept a settlement or Resolution Plan proposed by the debtor.3. Compulsion to Accept a Resolution Plan:The appellant argued that public sector financial institutions/banks should be compelled to accept a Resolution Plan under the given circumstances. The High Court, however, observed that the public sector financial institutions/banks could not be forced to accept a debtor's Resolution Plan. The Supreme Court upheld this view, indicating that the High Court was right in its assessment that the banks/financial institutions had the discretion to decide on the acceptance of Resolution Plans. The appeal was dismissed, affirming the High Court's decision without any order as to costs.Overall, the Supreme Court found no merit in the appeals and upheld the High Court's judgments, emphasizing the discretionary power of banks/financial institutions in matters of asset sales and Resolution Plans.