TaxTMI 
TaxTMI 
2018 (8) TMI 1600
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....d Advocates, for the Reserve Bank of India. ORDER (Per Dilip B Bhosale, CJ) 1. The first writ petition under Article 226 of the Constitution of India, has been instituted by Independent Power Producers Association of India, for the following reliefs: "A. Issue an appropriate writ, order or direction for declaring the provisions of Section 35AA and Section 35AB of the Banking Regulation Act, 1949, as ultra vires to the Constitution of India; B. Issue a Writ of Certiorari or any other Writ, Order or Direction of like nature quashing the Order S.O. 1435(E) dated 05.05.2017 issued under Section 35AA of the Banking Regulation Act, 1949, being without the authority of law; C. Issue a Writ of Certiorari or any other Writ, Order or Direction of like nature quashing the Circular having no. DBR No. BP.BC.101/21.04.048/2017-18 dated 12.02.2018." 2. The second writ petition has been filed by Association of Power Producers ( Writ-C No. 23181 of 2018) and the third writ petition (Writ-C No. 23183 of 2018) by Prayagraj Power Generation Company Limited. The prayers made in these two writ petitions are similar, as made in Writ - C No. 18170 of 2018, and even i....
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....f stressed assets under this framework, including the timelines for resolution. As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default. The resolution play (RP) may involve any actions/plans/reorganization including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities/investors, change in ownership, or restructuring Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower's financial difficulty (An illustrative non-exhaustive list of indicators of financial difficulty are given in the Appendix to Anex-I), grants concessions to the borrower. Restructuring would normally involve modification of terms of the advances/securities, which may include among others, alteration of repayment period/repayable amount/the amount of instalments/rate of interest; roll over of credit facilities; sanction of additional credit facility; enhancement of existing credit limits; and, compromise settlements where time for payment of settlement amount exceeds three months....
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....Timelines for Large Accounts to be Referred under IBC 8. In respect of accounts with aggregate exposure of the lenders at Rs. 20 billion and above, on or after March 1, 2018 ('reference date'), including accounts where resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods (as per the previous guidelines), RP shall be implemented as per the following timelines: i) If in default as on the reference date, then 180 days from the reference date. ii) If in default after the reference date, then 180 days from the date of first such default. 9. If a RP in respect of such large accounts is not implemented as per the timelines specified in paragraph 8, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) Applicable in respect of entities notified under IBC within 15 days from the expiry of the said timeline The prescribed timelines are the upper limits. Lenders are free to file insolvency petitions under the IBC against borrowers even before the expiry of the t....
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....r details in respect thereof as they may not be necessary at this stage. 7. During last five years, according to the petitioners, due to several negative externalities impacting them like structural flaws in the regulatory mechanism as implemented; fuel supply crisis in thermal sector; evacuation system constraints; populist decisions taken contrary to the letter and spirit of Section 61 of the Electricity Act, eroded the semblance of financial creditworthiness in the power sector. According to the petitioners, out of Indian banks' gross NPAs or bad loans of around Rs. 11,00,000 crore, power sector has around 2,50,000 crores NPAs on account of non-availability of coal, lack of PPAs, wrongful under-recovery and disallowance of legitimate cost changes for variety of reasons. 8. In this backdrop, the circular has been issued on 12.02.2018 and it was brought into force from 01.03.2018 (the reference date). 9. Respondent no. 3 - Ministry of Power, having recognized that power sector has been facing several financial issues on account of factors leading to a situation wherein the power sector, in particular the thermal, has contributed to an increase of NPAs, the Standing Co....
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....e of the considered view that providing finances, though vital, to the project is only one of the several factors essential for the commissioning of the project. As of now, commissioned plants worth of thousands of MWs are under severe financial stress and are currently under SMA-1/2 stage or on the brink of becoming NPA. This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc. These projects were commissioned on the basis of national need/ demand of electricity, availability of all other essentials required in this regard. However, due to unforeseen circumstances, these plants are suffering from cash flows, credit rating, interest servicing etc. Hence, simply applying the RBI guidelines mechanically by the banks, financial institutions, joint lender forums will push these plants further into trouble without any hope of recovery. The Government of India proposed new credit rating system for fundamentally strong projects which face temporary cash flow mismatch. The emphasis was on various inbuilt credit enhancement structures. The Committee understand that banks have not adopted these guidelines for assessing the credit risk of infra....
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.... of the major contributory factor for pushing the assets into NPA. This is a very serious situation and requires urgent remedial measures. The Committee, therefore, recommend that instead of indulging into futile attempts of different kinds exhibiting hollow exercises only, all efforts should be made to display that there is no mismatch between words, action and the result. Shakti Scheme 8. There are genuine apprehensions regarding availability and allocation of coal among the power producers. During the recent study visit, the Committee itself found that the availability of coal in one of the NTPC plants is very critical and this is the situation in several other plants of the NTPC as well. This affectively rebuts the claim of the Coal India that there is no shortage of coal in the country. The Committee expect that CIL would focus on the seriousness of the issues instead of making tall claims without any basis. The delay in the implementation of the scheme of SHAKTI should not have happened as it has disastrous entailing effects. The Committee, therefore, recommend that CIL should make every effort to make available the required quantity of coal to every develop....
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.... Role of RBI 12. ... The Committee, therefore, recommend that the revival schemes of the RBI or the Government should be realistic and not symbolic. Every effort should be made to see that projects with huge investment do not become NPA for want of marginal financial infusion or adjustment in the way of making working capital available for passing on the interest variable to the stressed asset. Strategic Debt Restructuring 13. The Committee note that the major reasons for stress in most of the thermal power projects have been attributed to (i) non-availability of Fuel (a) Cancellation of coal block, (b) projects set up without linkage, (ii) lack of enough PPA by states, (iii) inability of the promoter to infuse the equity and working capital, (iv) contractual/tariff related disputes, (v) issues related to banks/financial institutions (FIs), (vi) delay in project implementations leading to cost overrun and (vii) aggressive bidding by developers in PPA. Once the project is categorized as NPA, remedial measures of different efficacy follow. One of the remedies available is Strategic Debt Restructuring Scheme. ..." (emphasis supplied) 9.1 From....
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....fically drawn to some observations in Part-II of the report, which reads thus: "The Committee are of the considered view that providing finances, though vital, to the project is only one of the several factors essential for the commissioning of the project. As of now, commissioned plants worth of thousands of Mws are under severe financial stress and are currently under SMA-1/2 stage or on the brink of becoming NPA. This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc. These projects were commissioned on the basis of national need/ demand of electricity, availability of all other essentials required in this regard. However, due to unforeseen circumstances, these plants are suffering from cash flows, credit rating, interest servicing etc. Hence, simply applying the RBI guidelines mechanically by the banks, financial institutions, joint lender forums will push these plants further into trouble without any hope of recovery." It is needless to mention that the petitioners representatives shall supply a copy of this order and of the writ petition with annexures to all the respondents within one week from today. We on....
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....tional tariff under change in law ▪ Legal issues related to auctioned coal mines - Aggressive bidding under the re bid coal mines ▪ Banks/FIs related issues * Delay in disbursement/non agreement amongst FIs/non compliance to decision taken in JLF * working capital - Delays in approval of working capital * Other operational issues such as land acquisition, inadequate transmission system etc. Recommendation 1 - To set up a High Level Committee To deal with the cross sector concerns raised by various stakeholders and consider suggestions made by them, during presentations & submissions (as shown in Figure), an appropriate High Level Empowered Committee (HLEC) be constituted by the Ministry of Power. This would be in line with the recommendations given by the Hon'ble Parliamentary Standing Committee on Energy in it's 37th report. The HLEC may in a time bound manner specifically look into the cross cutting issues being faced by the thermal power sector in general and IPPs in particular. Recommendation 2 - Additional time for commissioned assets An additional 180 days, beyond the....
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....o the nature of reference and to achieve the vision of power for all 24x7, decided, with the approval of the Prime Minister, to constitute a High Level Empowered Committee headed by the Cabinet Secretary. The Ministry of Power, accordingly, issued a Press Release announcing constitution of the High Level Empowered Committee to address the issue of Stressed Thermal Power Projects. At this stage itself, I observe that a representative of the RBI ought to be a part of the Committee. I hope and trust that either PMO or Ministry of Power shall appoint an RBI representative also on the Committee. 13. It would not be out of place for us to mention that after Mr. Singhvi, learned Senior Counsel for the petitioners closed his arguments on interim relief, learned Senior Counsel for the RBI, Mr. Anurag Khanna, at that stage, submitted that the RBI proposes to make an application for transfer of these petitions to the Supreme Court, to be heard with other petitions pending there, challenging the very same circular, and prayed for short adjournment to advance arguments in reply. The RBI, accordingly, I am informed, made an application for transfer. The Supreme Court, however, adjourned the h....
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....ommittee on Energy: "Exactly in 180 days to find an optimal solution and resolve is almost impossible. We have submitted a timeline to the Ministry that minimum, if no roadblocks come in between, 231 days are required because you have to prepare bidding document, technical and financial operation, then you have to invite bids and evaluate, document it and create security also. All these aspects within 180 days is almost impossible. Ultimately solution is the NCLT only. It means every project will ultimately land up in NCLT where pipeline would be chocked. There are limited number of judges. It will not be so easy." (emphasis supplied) "unfortunately 100 per cent consensus to be reached is difficult because in some projects we are having as many as 27 banks." (emphasis supplied) 14.3 Explaining why the electricity sector should be treated differently with respect to resolution of the stressed assets, the CMD, during his presentation before the Committee, stated as under: "Power Sector is in a transition which is well known and we are really moving in from a low demand, low supply situation to a moderately high demand context. This is t....
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....l under the circular or NCLT will end up having a big sacrifice of public money without having any benefit to the economy or the Electricity sector because the new promoter will have the same problem. Meenakshi Energy got restructured in such a manner and again, it is in stress because if the existing promoters cannot solve the systemic issues, how the new promoter will solve them." (emphasis supplied) 14.8 Similarly, a representative of SBI, the largest Banking Company in India, also deposed before the Committee as under: "As of now our deadline is 27th August not only for getting the bids, but even this restructuring has to be reflected in the books of the banks as well as in the books of the company. Now, this deadline is approaching so fast. The bidding process takes time, and then there are negotiations involved in it. If in the case of power project 12 months' time is given, then this can work smoothly and also very efficiently. Hence, we want an extended time for these." (emphasis supplied) 14.9 Highlighting the need for synchronization between the RBI's Guidelines and the resolution of the systemic issues of the Electricity Sector, t....
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....e by the Committee in 40th report since the RBI raised a serious dispute in respect thereof. 16. It is against this backdrop, we have heard learned counsel for the parties. 16.1 Mr. Abhishek Manu Singhvi, learned Senior Counsel for the petitioners, after drawing our attention to the materials referred to in the forgoing paragraphs, submitted that the circular is arbitrary and violates Article 14 of the Constitution of India. It equates a heavily regulated sector like electricity, where the Central and State Regulatory Commissions regulate tariff, procurement, payments etc. with unregulated sectors like steel, cement, manufacturing etc and thereby treats unequals equally. It was submitted that there is a need for a separate framework which recognises and addresses the externalities faced by the power sector, as has been acknowledged not only by the Standing Committee but also by the Committee constituted by orders of this Court. He submitted, the circular fails to provide for an alignment of its mechanism with the regulatory regime and statutory scheme and policy in the power sector with the crippling distortion. He submitted that if the circular is implemented as it is and/or....
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....ion, naming those agencies, after 100 days, i.e. on 21 May 2018. Hence, no resolution process could commence or carry out effectively for want of credit evaluation by approved credit rating agencies and, on this ground alone, he submitted, the petitioner deserves an interim relief, as prayed. He then referred to the recommendation made by the Committee constituted by this Court and submitted that till a report of the High Level Empowered Committed is submitted, the impugned circular may not be implemented. 16.3 Mr. Poovayya, further submitted that the impugned circular violates Article 14 of the Constitution since there is lack of classification, it treats unequals equally, has no nexus with the objective sought to be achieved - resolution of stressed assets and adopts a 'one pill for all ills' approach. The circular, it was submitted, treats regulated and unregulated sectors in the same manner failing to consider sectoral issues and ground realities, affecting different sectors. Power sector, he submitted, is heavily regulated and dependent on Government dispensation, such as tariff is regulated and determined by Central and State Electricity Regulatory Commissions, all....
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....e to a grinding halt. He therefore submitted, to tackle the outstanding NPAs, Parliament on 01.12.2016 enacted the IBC with two primary objectives - (i) maximization of value of assets; and (ii) a time bound resolution of stressed assets. 16.6 He then took us through several provisions of IBC and submitted that commencement of IBC proceedings would not result in closure of defaulting companies. As a matter of fact, he submitted, under the IBC, the Resolution Professional (for short "RP") is required to keep the corporate debtor running as a going concern as provided for under Section 20 (1) of IBC. Except the fact that the Board of Directors stand suspended, the corporate debtor continues to have the benefit of all its employees and personnel and they are bound to cooperate and if they do not, a remedy by way of an application to the NCLT is provided under Section 19 (2) of IBC. Thus, for admission of a petition for insolvency resolution, except for the suspension of the erstwhile Directors, there is no change in the running of its business. 16.7 Mr. Kadam, then submitted that the RP is also mandated to look for resolution applicants in place of the former management. For thi....
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.... initiate insolvency proceedings against certain companies as listed therein. These companies were those where more than 60 percent of the total outstanding has been NPA since 30.06.2017. Thereafter, the impugned circular has been issued by the RBI with revised framework for resolution of stressed assets whereby the RBI put in place a harmonized and simplified framework for resolution of large stressed assets. Hence, the process which commenced on 13.06.2017, he submitted, logically progressed to the circular. He submitted that all directions issued by RBI in exercise of its powers under Section 35AA and Section 35AB disclose a conscious application of mind towards resolving the NPA situation by identifying largest defaults i.e. defaulters with more than 60 percent NPA and culminating in the impugned direction for initially proceeding against accounts exceeding Rs. 2,000 crores and thereafter proceedings against accounts above Rs. 100 crores and leaving the remaining cases to be decided in a further phased manner. In this backdrop, he submitted that having regard to the objective behind Reserve Bank of India exercising its powers by issuing different circulars including impugned ci....
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....a (for short 'the Rules'). Rule 2 of the Rules defines "Parliamentary Committee". It reads as follows:- 2. (1) ... "Parliamentary Committee" means a Committee which is appointed or elected by the House or nominated by the Speaker and which works under the direction of the Speaker and presents its report to the House or to the Speaker and the Secretariat for which is provided by the Lok Sabha Secretariat." (emphasis supplied) 17.1 A reference was also made to Rule 270 of the Rules of Procedure and Conduct of Business in Lok Sabha (for short 'the Rules'). Paragraph 83 thereof reads thus: "83. Rule 270 of the Rules, which deals with the functions of the Parliamentary Committee meant for Committees of the Rajya Sabha, is relevant. It reads as follows:- "270. Functions.- Each of the Standing Committees shall have the following functions, namely- (a) to consider the Demands for Grants of the related Ministries/Departments and report thereon. The report shall not suggest anything of the nature of cut motions; (b) to examine Bills, pertaining to the related Ministries/Departments, referred to the Committee by the Chai....
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....acts stated therein; or (ii) contest the correctness of the opinion of the parliamentary standing committee report and the facts stated therein. In the former scenario, the respondents at the very least would be put in an inequitable and disadvantageous position. It is in the latter scenario that the Court would be called upon to adjudicate the contentious facts stated in the report. Ergo, whenever a contest to a factual finding in a PSC Report is likely and probable, the Court should refrain from doing so. It is one thing to say that the report being a public document is admissible in evidence, but it is quite different to allow a challenge." (emphasis supplied) 17.3 From the relevant observations in paragraph 125 and paragraph 132, it is clear that reliance can be placed upon the the contents of the Parliamentary Standing Committee report, subject to the right of the respondents to contest or controvert the same. In such a situation, the Courts would be duty bound to afford the respondents an opportunity of being heard in consonance with the principles of natural justice. The Supreme Court has made a categoric observation that whenever a contest to a factual finding i....
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....n highlighting the lacunae in its framework. There is no reason in principle why the wide jurisdiction of the High Courts under Article 226 or of this Court under Article 32 should be exercised in a manner oblivious to the enormous work which is carried out by parliamentary committees in the field. The work of the committee is to secure alacrity on the part of the government in alleviating deprivations of social justice and in securing efficient and accountable governance. When courts enter upon issues of public interest and adjudicate upon them, they do not discharge a function which is adversarial. The constitutional function of adjudication in matters of public interest is in step with the role of parliamentary committees which is to secure accountability, transparency and responsiveness in government. In such areas, the doctrine of separation does not militate against the court relying upon the report of a parliamentary committee. The court does not adjudge the validity of the report nor for that matter does it embark upon a scrutiny into its correctness. There is a functional complementarity between the purpose of the investigation by the parliamentary committee and the adjudi....
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.... held: "57. It is an accepted fact that the reports of the Janakiraman Committee, the Joint Parliamentary Committee and the Inter- Disciplinary Group (IDG) are admissible only for the purpose of tracing the legal history of the Act alone. The contents of the report should not have been used by the learned Judge of the Special Court as evidence." (emphasis supplied) 17.6 Dr. D.Y. Chandrachud, J., in the concluding paragraph observed that, as a matter of principle, there is no reason why reliance upon the report of a Parliamentary Standing Committee cannot be placed in proceedings under Article 32 or Article 136 of the Constitution. If the observation made by Dr. D.Y. Chandrachud, J., in paragraph 124, as quoted above, are read with the conclusion, would also mean that reliance on such report can be placed in proceedings under Article 226 of the Constitution of India. 17.7 Then, Ashok Bhushan, J., while recording a separate opinion in Kalpana Mehta, in paragraph 152, observed that the apprehension of the respondents that their case shall be prejudiced if this Court accepts the Parliamentary Committee report in evidence, in our opinion is misplaced. By acceptan....
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....xercised in a manner oblivious to the enormous work which is carried out by Parliamentary Committees in the field. When courts enter upon issues of public interest and adjudicate upon them, as observed by the Supreme Court, they do not discharge a function which is adversarial. The doctrine of separation does not militate against the court relying upon the report of a Parliamentary Committee. The court does not adjudge the validity of the report nor for that matter does it embark upon a scrutiny into its correctness. There is a functional complementarity between the purpose of the investigation by the Parliamentary Committee and the adjudication by the court. To deprive the Court of the valuable insight of a Parliamentary Committee would amount to excluding an important source of information from the purview of the Court as observed by the Supreme Court. The Court must look at the report with a robust common sense, conscious of the fact that it is not called upon to determine the validity of the report which constitutes advice tendered to the Parliament. The extent to which the court would rely upon a report must necessarily vary from case to case and no absolute rule can be laid d....
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....fault under the provisions of IBC. The preamble to the Ordinance, issued on 04.05.2017, read thus: "WHEREAS the stressed assets in the banking system have reached unacceptably high levels and urgent measures are required for their resolution; AND WHEREAS the Insolvency and Bankruptcy Code, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders; AND WHEREAS the provisions of Insolvency and Bankruptcy Code, 2016 can be effectively used for the resolution of stressed assets by empowering the banking regulator to issue directions in SPECIFIC CASES; AND WHEREAS Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action;" (emphasis supplied) 22.1 Section 35AA and Section 35AB, inserted in the BR Act, by way of Amending Act, 2017, read thus: "35AA. The Central Government may by order authorise....
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....itors or in a manner prejudicial to the interests of the banking company or to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. Thus, even before introduction of Sections 35AA and 35AB, the RBI had powers under Section 35A to give directions as aforementioned. Sections 35AA and 35AB have been introduced after the IBC was enacted and brought into force. In view of the provisions contained in Section 35A, it is not in dispute that even under that provision, the RBI could have issued directions similar to the directions issued under the circular without reference to IBC. In other words, it was possible to issue directions to secure the proper management of any banking company and to prevent its affairs being conducted in a manner detrimental to the interests of depositors or in a manner prejudicial to the interests of the banking company. But this power was not exercised by RBI, insofa....
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....at intention can be gathered on the basis thereof. He submitted that SOR specifically provides for authorising the RBI to issue directions to any banking company or banking companies to effectively use the provisions of IBC for timely resolution of "stressed assets". He submitted, in view of the SOR, even under the provisions of Section 35AB the RBI can give direction to any banking company or banking companies for resolution of stressed assets under the provisions of IBC. 22.6 To appreciate and to understand the submissions advanced by learned Senior Counsel for the parties and also the intention of legislature, it would be advantageous to reproduce the SOR dated 14.07.2018 to the Amending Act, 2017, which reads thus: "Stressed assets in the banking system, or non-performing assets have reached unacceptably high levels and hence, urgent measures are required for their speedy resolution to improve the financial health of banking companies for proper economic growth of the country. Therefore, it was considered necessary to make provisions in the Banking Regulation Act, 1949 for authorising the Reserve Bank of India to issue directions to any banking company or banking co....
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....n intention to confer powers against all corporate debtors, the provisions of Section 35AB would have made it so clear. In other words, Section 35AB would have certainly provided for authorisation, as provided for under Section 35AA for the use of IBC process of insolvency resolution. One clearly finds that in Section 35AB the authorisation by the Central Government and action under IBC are missing. A plain reading of Section 35AB with SOR, in particular clause (b) of Para 3 of the SOR, one finds that directions under Section 35AB are general in nature and not to initiate action under IBC. The powers of RBI to issue any such direction, is under Section 35AA, under which banking company or banking companies can be directed to initiate insolvency process in respect of a default, under the provisions of IBC in specific/individual cases, including specific sector. The argument based on Sections 35AA and 35AB go to the root which require further hearing. It would not be proper to record any categoric finding at this stage and it would be proper to give further opportunity to both the sides to make their submissions on this question. 22.8 The RBI Act was enacted and brought in force o....
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....tional Company Law Tribunal constituted under Section 408 of the Companies Act, 2013, as defined under sub-section (1) of Section 5 of the IBC, is empowered, within 14 days of the receipt of the application, ascertain the existence of default and, after being satisfied, admit such an application and then follow the procedure as contemplated under the provisions of Chapter II. Time limit for completion of insolvency resolution process is provided for under Section 12. It would be advantageous to reproduce the said provision, which reads thus: "12. Time-limit for completion of insolvency resolution process. - (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process. (2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares. (3) On re....
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.... ends with approval of a Resolution Plan or ends with dissolution of the corporate debtor. The time limit provided under Section 12 (1) is 180 days and it could be extended by another 90 days, i.e. beyond 180 days, if instructed to do so by the resolution passed at a meeting of the committee of creditors by a vote of 66 percent of voting shares. Once the process starts it can not be interrupted. Thus, on receipt of an application under sub-section (2) for extension of the period of corporate insolvency resolution process beyond 180 days, if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within 180 days, it may, by order, extend the duration of such process beyond 180 days for such further period as it thinks fit, but not exceeding 90 days and such extension cannot be granted more than once, as provided in the proviso to sub-section (3) thereof. In other words, once the process begins it cannot be interrupted. It must get resolved within 180 days plus 90 days i.e. 270 days. That process in the present case as mandated would start any time within 15 days from 27.08.2018 as provided f....
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....pecific issues" that a timline prescribed under the circular be made effective after 180 days from 27.08.2018 and subsequent steps be taken by the parties based upon the reports of the High Level Empowered Committee presided over by the Cabinet Secretary. He submitted, the time can be extended at this stage and not once process under IBC is set in motion. 25. From the efforts that are being made by the Central Government starting with the report of the 37th Standing Committee and till the constitution of the High Level Empowered Committee with the approval of the Prime Minister insofar as the power sector is concerned, cannot be completely overlooked and judicial note of these developments is required to be taken at this stage and, if that is not done, perhaps, as submitted by the petitioners, that may cause irreparable loss to the power sector. Further, it was submitted that if some reasonable time is granted to the power sector to work on RPs and to the Central Government to take appropriate decision on the basis of report of High Level Empowered Committee in exercise of the powers under Section 7 of the RBI Act, no irreparable loss would be caused to the economy of ....
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....question, as has been raised, can be considered at later stage. The revival scheme should be realistic and not only based on the provisions of law. Every effort should be made to see that the "power projects" with huge investments do not become NPA for want of marginal financial infusion or adjustment in the way of making working capital available for passing on the interest variable to the stressed asset, so that the power generation in the country is given a fillip and the vision of "power for all" is achieved sooner than later. Alongwith the economic health of the country, which is the direct concern of the RBI, progress and growth of the country including providing power/electricity to every village in the country, is the concern of the Government and, therefore, there should be unanimity amongst the different arms of the Government on such crucial issues. 29. In this backdrop, at this stage I would like to consider the submission of Mr. Dwivedi, learned Senior Counsel for the RBI, that even a day's extension after 27.08.2018 would be detrimental to the economic health of the country apart from the fact that it would be contrary to the scheme of the IBC and the circular ....
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....al gross NPAs was Rs. 81,805 crores, being approximately 2.51% of the total gross advances. The figure of NPA was then increased in March 2018 to Rs. 83,99,196 crores and the total gross NPAs was increased to Rs. 9,62,621 crores, being 11.46 percent of the total gross advances. Insofar as power sector is concerned, it is clear that in March 2015, the gross advances made by public sector banks was Rs. 4,08,256 crores and the total gross NPAs was Rs. 10,804 crores, being approximately 2.6% of the total gross advances. These figures, in March 2018, reached to Rs. 4,64,969 crores and Rs. 1,04,337 crores, being 22.4% of the total gross advances. This undoubtedly shows that the power sector is under stress, in particular from 2015 onwards. I have already noticed the reasons which are also highlighted in the Standing Committee reports, which are not in dispute, why the electricity generation companies are under stress since 2014-15. Thereafter the IBC was enacted and brought into force on 28 May 2016 to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value....
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.... percent of the voting shares. Section 30 deals with submission of a resolution plan. Sub-section (4) thereof clearly provides that the committee of creditors may approve a resolution plan by a vote of not less than 66 percent of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board. Thus, from all these provisions, it appears to us that every decision/approval in respect of a resolution plan at every stage is required to be taken by a vote of not less than 66 percent of voting share of the financial creditors. 29.5 As against this, the circular, impugned in these petitions, provides that a resolution plan shall be clearly approved/documented by all lenders, i.e. 100 percent lenders. The CMD, Rural Electrification Corporation, deposed that exactly in 180 days to find an optimal solution and resolve is almost impossible and that too with "100 percent consensus" is almost impossible. In view of the directions given by the circular, even a person having 0.1 percent share can stall the resolution process. The Chairman of SBI deposed that even though the RBI circular has the complete fram....
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....ities, borrowing, lending, recovery of loans etc. which they are supposed to regulate. It is also true that the circular gives effect to the economic policy contained in Sections 35AA and 35AB of the BR Act and is the culmination of a phased and systematic process by which twin objectives of the IBC, namely (i) maximization of value of assets; and (ii) a time bound resolution of stressed assets, are being achieved in a rational manner. It was submitted on behalf of the RBI that in cases where accounts have already been classified as NPA, it gives the corporate debtor yet another opportunity of 180 days to permit resolution outside IBC. The action under the circular, as submitted, is rational and completely meets the statutory object of making the most substantial recoveries in the shortest possible time. The power sector, in any case, cannot be given different treatment since it is not consistent with the object and purpose of IBC. He further submitted that the RBI, being a banking regulator, is bound to treat all defaults equally and without discrimination and can only classify them on basis that are relevant and have nexus with the objectives of the IBC. It was further submitted,....
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....m 27.08.2018, to some future date, if the case is made out for such relief, needs to be answered at an appropriate stage. 32. I now would like to consider Mr. Kadam's submission based on the three circulars dated 13.06.2017, 28.08.2017 and 12.2.2018. I have perused the first circular dated 13.06.2017 very carefully. It appears therefrom that an Internal Advisory Committee (IAC) was constituted, which held its meeting on 12.06.2017 and agreed to focus on large stressed accounts at that stage and accordingly took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system. The IAC also arrived at an objective, nondiscretionary criterion for referring accounts for resolution under IBC. In particular, the IAC recommended for IBC reference in respect of all accounts with fund and non-fund based outstanding amount greater than Rs. 5,000/- crore, with 60 percent or more classified as non-performing as of 31.03.2016. The IAC noted that under the recommended criterion, only 12 accounts totaling about 25 percent of the current gross NPAs of the banking system would qualify for immediate reference u....
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....ble for the Central Government to issue such directions immediately after the 37th report or at least when the High Level Empowered Committee was constituted. He submitted, in any case, as of today, the Central Government has not issued any such directions and in view thereof, it is not necessary to either grant interim stay of the circular as prayed for in the instant writ petitions or to grant any extension for implementation of the circular. 34. It is true that sub-section (1) of Section 7 of the RBI Act empowers the Central Government to issue directions from time to time to the RBI as it may, after consultation with the Governor, consider necessary in the public interest. The Central Government, however, is not expected to issue any directions, as contemplated under Section 7(1), indiscriminately or randomly. Such directions are possible when there exists sufficient material in support. I prima facie find that there exists material which deserves to be taken into consideration. The question, whether a breathing time deserves to be granted in the larger public interest and to achieve vision of power to all, needs to be answered by the Central Government. Learned ASG submitte....
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.... bidding by developers in PPA. It is, thus, clear that in addition to financial matters, stress in the power sector is also caused by various operational/commercial/regulatory issues. 37. The facts, as reflected in the reports of the Standing Committee, are not in dispute though it was vehemently submitted that the reports cannot be relied upon for curtailing the powers of RBI under the provisions of IBC read with the relevant provisions of the other enactments such as BR Act and RBI Act. The Standing Committee, in its 40th report, considered various operational/commercial/regulatory issues insofar as the power sector is concerned, in the light of the impugned circular. It appears from the depositions of experts, like CMD, Rural Electrification Corporation, Chairman, SBI, Secretary, Department of Financial Services, etc. that 180 days, as provided for in the impugned circular commencing from 1 March 2018, are not sufficient to find an optimal solution and to resolve the issues within 180 days and that too, with 100% consensus to be reached amongst the lenders/creditors, particularly, where the number of lenders/creditors is large. It also appears that the power sector is in a tr....
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....ed assets?; whether there was inordinate delay of 100 days (out of 180 days provided for resolution plan outside IBC) in issuing CRA notification as provided for in paragraph 6 of the circular?; whether the RBI committed any error of procedure in not referring the matter to Internal Advisory Committee (IAC), as was done when two earlier circulars were issued, before issuing the circular?; whether there was a delay on the part of RBI in exercising its powers under Section 35A or under Section 35AA of BR Act though NPAs started emerging in 2010, in particular 2015 - so far as power sector is concerned? and, if yes, why can't it wait for some time more as prayed for by the petitioners and the Government?; whether RBI can issue directions under Section 35AB to the banking company or banking companies for resolution of stressed assets under IBC?; whether the circular treats unequals equally?; and whether while exercising powers under Section 35AA and 35AB, the RBI was expected to take sectoral issues into consideration, may be after seeking advise of IAC? 40. As stated in the foregoing paragraphs, so far sincere efforts seems to have been made at all levels, including all ministr....
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.... interlocutory relief in terms as prayed at this stage, where parties are yet to be heard in greater detail on contentious issues, the reliability of material on the basis of which an informed adjudication may be undertaken, of necessary parties not being before Court, would have a cascading and deleterious effect on the regime which the Reserve Bank of India RBI seeks to usher in. I also necessarily bear in mind the rubicon which must be recognised to exist when Courts are called upon to evaluate and rule on economic or fiscal measures framed by an expert body of stature attached to a central banking organisation namely the RBI. This the Court notes, not because it does not recognise its powers to interfere with a directive issued by the RBI in exercise of its powers of judicial review, but essentially and as would be evident from what follows, parties are yet to be heard on the seminal questions which this batch of writ petitions raise as also because the petitioners have failed to lay down a factual foundation entitling them to the grant of interim relief at this stage. At the tenuous juncture at which proceedings presently rest, the probable adverse impact that may flow from th....
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....From its list of members placed at Annexure-4 to the writ petition, we are informed that its members at Serial Nos. 13, 14, 15 and 21 have interests within the State of U.P. While an issue with respect to the maintainability of the writ petitions preferred by IPPA and APP has been raised, no objection is taken by the respondents with respect to the maintainability of the writ petition preferred by Prayagraj Power Generation. The question of maintainability is raised both in respect of the competence of IPPA and APP to institute and maintain a writ petition on behalf of their members collectively as well as on the ground of territorial jurisdiction. 46. Before however proceeding to notice and consider the rival submissions advanced before us, it would be relevant to note that arguments in detail spread over various dates were addressed primarily on the petition preferred by Prayagraj Power Generation and parties restricted their submissions to the issue of grant of interim relief. While detailed submissions spread over various dates were advanced with respect to the merits of the claim, all parties clarified that the submissions were being advanced only to enable this Court to co....
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....ately replaced by the Banking Regulation (Amendment) Act, 2017 2017 Act which was deemed to have come into force on 4 May 2017, the date when the initial Ordinance was promulgated. The SOR of the 2017 Act which would also have a bearing on the issue at hand is extracted hereunder for convenience: - "STATEMENT OF OBJECTS AND REASONS Stressed assets in the banking system, or nonperforming assets have reached unacceptably high levels and hence, urgent measures are required for their speedy resolution to improve the financial health of banking companies for proper economic growth of the country. Therefore, it was considered necessary to make provisions in the Banking Regulation Act, 1949 for authorising the Reserve Bank of India to issue directions to any banking company or banking companies to effectively use the provisions of the Insolvency and Bankruptcy Code, 2016 for timely resolution of stressed assets. 2. It was accordingly decided to make amendments to the Banking Regulation Act, 1949. Since Parliament was not in session and immediate action was required to be taken, the Banking Regulation (Amendment) Ordinance, 2017 was promulgated by the Presi....
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....ntified the top 500 accounts which had been classified as partly or wholly non-performing. The IAC further recommended that all such accounts having outstanding greater than Rs. 5,000 crores with 60% or more classified as NPA as on 31 March 2016 for initiation of action under the IBC. Based upon the initial criteria so formulated, 12 accounts were identified for immediate reference under IBC. RBI further provided that in respect of NPAs, which did not qualify the above criteria, their lenders should finalise a RP within six months. It further mandated that where a viable resolution is not arrived at within six months, banks would be required to initiate insolvency proceedings under the IBC. This Circular was followed by another directive of the RBI dated 28 August 2017. By means of this direction, RBI identified accounts where either the SBI was the lead bank or where the SBI was a member of the Joint Lenders Forum JLF. It accordingly directed SBI and other lenders that may have been part of the consortium of banks to complete the resolution process and implement a RP by 13 December 2017 failing which the JLF was directed to initiate insolvency proceedings before 31 December 2017. ....
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....e existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods (as per the previous guidelines), RP shall be implemented as per the following timelines: i) If in default as on the reference date, then 180 days from the reference date. ii) If in default after the reference date, then 180 days from the date of first such default. 9. If a RP in respect of such large accounts is not implemented as per the timelines specified in paragraph 8, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days from the expiry of the said timeline. V. Withdrawal of extant instructions 18. The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn with immediate effect. Accordingly, the Joint Lenders' Forum (JLF) as....
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....esson must be taken from the past in order to make the restructuring more meaningful and for the application of a more stringent criterion. RBI also took the position that it could not make any exception for any particular sector since this may lead to not only a host of demands of exceptions from other categories of stressed borrowers, it may also lead to legal challenges. RBI further rejected the suggestion of banks to initiate a resolution process only 90 days after default since it was of the opinion that a prolonged default was itself one of the contributors to the deterioration in the quality of the stressed assets. 54. Reverting to the provisions of the impugned directive, paragraph 5 provides that a RP shall be deemed to be implemented on the following conditions being met: a) The borrower entity being no longer in default with any of the lenders; b) If the RP involve restructuring, all related documentation and agreements between lenders and borrowers, creation of security etc. are completed by all lenders; and, c) The new capital structure and/or restructured terms of the existing loans are duly reflected in the books of both the lenders as w....
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....n extenso in the opinion of the Honble Chief Justice, I do not deem it necessary to extract their contents herein. C. MAINTAINABILITY OF THE PETITIONS BY IPPA and APP 58. Sri Rakesh Dwivedi, learned Senior Advocate appearing for RBI firstly raised the issue of maintainability of the writ petitions and submitted that both IPPA as well as APP were clearly not authorised to maintain the writ petitions voicing the alleged grievances of their members. He referred to the absence of a provision in the Articles of Association prescribing a condition that in case they were to initiate litigation on behalf of their members, they would be bound by the decisions rendered therein. He also submitted that in the petition filed by APP the resolution also did not empower or authorise it to initiate the present proceedings and all that was held out in the resolution brought on record was that its members would also join in the proceedings. More fundamentally, Sri Dwivedi submitted that in respect of a majority of the members of the two associations, the plans for restructuring had already been rejected and therefore no cause as such existed for this Court entertaining writ petitions at their b....
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....n the ground that the directive shall adversely affect the power sector as a whole and its members collectively. The test formulated by the Full Bench was "Where the rules or regulations of the association specifically authorise it to take legal proceedings on behalf of its members, so that any order passed by the court in such proceedings will be binding on the members." This test, in the facts of this case, is clearly met. 63. The relevant Bye laws/Articles of both IPPA and APP undisputedly empower the associations to initiate litigation in courts. In light of the express provision made in this respect any decision rendered on their writ petitions would clearly bind all its members. On an overall consideration of the nature of the challenge raised, it is evident that the same is a collective action instituted by IPPA and APP raising issues concerning all their members and is not an espousal of an individual grievance. I, therefore in view of the binding opinion entered by the Full Benches of this Court find myself unable to accept the dictum laid down in Goa Judicial Officers Association by the Bombay High Court. The decision in Mahinder Kumar Gupta Vs. Union of India (1995) 1....
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....that the petitions should have been preferred only where the registered or corporate offices of the members of IPPA and APP were situate since according to Sri Dwivedi the contracts between lenders and banks are entered into by and at the registered or corporate offices. I note that the challenge in the present proceedings does not emanate or stand confined to the contractual arrangements between parties. It essentially relates to the alleged detrimental effect that the impugned directions would have on the businesses of the members of IPPA and APP. In view of all of the above, I would overrule the objection with respect to the maintainability of the petitions moved by IPPA and APP. D. THE SUBMISSIONS OF THE PETITIONERS 66. Submissions on behalf of the petitioners were advanced by Sri A.M. Singhvi, Sri Sajjan Powaiyya and Sri Navin Sinha learned senior counsels. The petitioners primarily contend that RBI has proceeded to paint all stressed assets with one brush completely ignoring the sectoral concerns of the power industry as noticed in the 37th and 40th Standing Committee reports. It was submitted that the "sector agnostic" approach as adopted by the RBI is clearly violativ....
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....ious effect on the day to day functioning of the corporate debtor and also result in the suspension and rescission of all contracts including Power Purchase Agreements. Reference was also made to the provisions of Section 29A which denudes the existing promoters or management from the right to submit a plan for resolution. In substance the submission was that since the admission of the petition under the IBC would trigger steps which are permanent and irrevocable, the ends of justice would merit all coercive actions being deferred till such time as the proceedings before the HLEC stand concluded. This line of submission was also addressed in light of the stated stand of the Union Government as embodied in the report of the Committee constituted under the orders of the Court, the oral submissions advanced by Shri Tushar Mehta, the learned ASG and in light of what is noticed hereinafter. In light of the submissions advanced by and on behalf of the Union Government by the learned ASG, the petitioners contended that the stand of the RBI refusing to budge from the prescribed time line was clearly arbitrary and warranted the intervention of this Court. E. SUBMISSIONS OF THE UNION 6....
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....ous institutional resolution mechanisms. His submission was that the glaring fact that the gross NPAs, as on 31 March 2017 were equivalent to approximately 5% of the country's GDP, clearly justified the processes and steps initiated by RBI. According to Shri Kadam, in the absence of a continuous flow of credit from Banks, the economy and growth of the nation as a whole would be seriously impacted. RBI would contend that it was in the backdrop of the above factual position as prevailing that necessity was found justifying the imposition of a strict time frame for formulation and implementation of a RP and on its failure for initiation of insolvency resolution under the IBC. 72. It was also submitted that the initiation of proceedings under the IBC does not result in a closure of the corporate debtor. Reference was made to the provisions of Section 20 of the IBC to submit that a RP is required to keep the corporate debtor running as a "going concern". On the strength of the provisions of Section 19, it was further submitted that in spite of the fact that the Board of Directors stand suspended, the corporate debtor continues to retain all employees and personnel with it. It was thu....
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....nder IBC cannot be circumscribed or made to depend upon whether default is willful or genuine. 75. It was also submitted that the impugned directions were in essence, a policy measure framed by RBI, which is the primary regulatory and expert body on the subject. According to Shri Kadamb, interference by the Court with such a policy measure would only be warranted where it be found that the measure is so outrageous as to be in defiance of logic or moral standards or is manifestly unjust or designed to reach an unlawful end. Shri Kadamb in support of his submissions has also placed reliance upon the decisions of the Supreme Court in Innoventive Industries Ltd. 2018 1 SCC 407 and a yet more recent decision rendered by the Supreme Court in Chitra Sharma & Ors. Vs. Union of India & Ors. Writ Petition (Civil) No. 744 of 2017 decided on 9 August 2018 I shall deal with the two decisions referred to above in the subsequent parts of this order. 76. Shri Kadamb has then detailed the financial position and condition of Prayagraj Power Generation to submit that it was clearly not entitled to the grant of any interim relief. From the summary of arguments placed on record, I note that....
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....edi has sought to impress upon the Court the state of the banking and financial sector of the country by highlighting the following facts: (a) While the total gross NPAs constituted 2.51% of the total gross advances made by public sector banks as on March 2010, this percentage has increased substantially and as on March 2018, the total gross NPAs rose to 11.46% of the total gross advances. (b) The total gross NPA percentage of electricity generating companies increased from 2.6% of the total gross advances as on March 2015 to 22.4% as on March 2018. (c) The profitability of banks which stood at Rs. 52,638 crores as on March 2010 stood completely eroded and as on March 2018 banks faced a loss of Rs. 24,820 crores. (d) The total capital infusion in public sector banks by the Union Government from 2008-09 till 2018-19 stood at Rs. 2,73,000 crores. (e) The significant increase in infusion of budgeted capital in public sector banks was highlighted with the aid of the chart appended as Annexure-4 to the Supplementary Affidavit. 80. Sri Dwivedi in essence submitted that RBI was constrained to initiate action and issue the impugned directive bearing in mind the above fina....
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....ommittees submitted that they were merely in the nature of advice. It was submitted that the reports of the committees had not been utilized for the issuance of any statutory directions or suggested amendments to the existing statutory regime. Sri Dwivedi also highlighted the inherent peril attached to the Court adopting the recommendations of these committees if ultimately the Union Government decided not to accept those reports. It was contended that no occasion arises for this Court to mandate a change or modulation in the policy framed by the RBI or to substitute its own prima facie view in respect thereof even before the Union Government were to act upon or accept the recommendations contained in these reports. The submission of Sri Dwivedi in essence was that the Courts while dealing with such complex fiscal issues must adopt a "hands off" approach and leave it for respective governmental authorities and statutory functionaries to initiate the consultative process contemplated under Section 7 of the 1934 Act. 83. Turning to the impugned directive, Sri Dwivedi submitted that the same could clearly not be considered as being violative of Article 14 of the Constitution. Far f....
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....rovisions of the IBC which have been noticed while detailing the submissions of Sri Kadam. Taking us through the scheme and relevant provisions of the IBC it was contended that the very essence of the Code is to formulate a RP for the stressed asset and if found viable to ensure its resurrection. 86. Sri Dwivedi has further underlined the fact that the RBI by the very nature of its position as a central bank of the country is unlike any other regulator. He drew our attention to the provisions of the 1934 and 1949 Acts to highlight the vast panoply of powers conferred on and vested in the RBI to enable it to discharge its myriad functions as the primary monetary regulator of the nation. Sri Dwivedi stressed that the decisions taken by such a body should not ordinarily be interfered with unless they are found to be palpably arbitrary as also bearing in mind the principles of judicial restraint which must be exercised in respect of economic and fiscal policies. 87. Turning then to the prayer of the petitioners for the grant of interim relief, it was submitted that the grant of injunction in any form would seriously impact the measures formulated by RBI and have a cascading detri....
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....sion for this Court to grant any interim relief. Shri Dwivedi then rested his case on Section 12A to submit that in any view of the matter, it would always be open to the financial creditors to withdraw from the IBC, in case, the proposal was accepted. 89. Addressing the submission advanced with respect to the notifications of CRA's, Shri Dwivedi contended that a careful reading of paragraph 6 of the impugned directive would establish that the independent credit evaluation is not a pre-condition for the submission of a RP. It was contended that the independent credit evaluation of residual debt is connected with implementation and is not a condition for its initial acceptance. The credit evaluation, according to Shri Dwivedi, comes into play only at a stage where the financial creditors proceed to consider the viability of the RP. In view of above, it was submitted that the contention that the period of 180 days should commence only from 21 May 2018, would not commend acceptance. In the end, Shri Dwivedi submitted that the jurisdiction of the Court had been ill-advisedly invoked since no factual foundation had been laid and that in any view of the matter, the petitioners did not....
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....ile reliance upon the report of a Parliamentary Committee for the purposes noticed above is one thing, the exercise of power by a constitutional Court based solely upon the recommendations contained in such reports would be a wholly different matter. 95. As is evident from a reading of Rule 277 of the Rules of Procedure and Conduct of Business in the Lok Sabha, a report of a Standing Committee is only enjoined to have persuasive value and is entitled to be treated as considered advise given by the Committee. This Court also cannot loose sight of the fact that the stand of the RBI has been consistently opposed to the acceptance of the recommendations as framed by the Standing Committee. The advice tendered by the Standing Committee is yet to be accepted by Parliament and undisputedly no statutory measure or provision has been made or adopted to give effect to the same. The two reports relied upon by the petitioners have also not moved the Union Government itself to issue any directives or to initiate the consultative process as envisaged under Section 7 of the 1934 Act. As I noted while recording the submissions of the learned ASG, the Union Government remained unequivocal and am....
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....t in motion a process to deal with the problem. From that day, within 180 days, the problem should be solved. If the problem is solved within 180 days, the case does not go to NCLT . " XXXX International research has shown that higher and quicker build up of provisions helps in faster resolution of stressed assets. The stressed assets include throughout the sector, throughout the economy. The infusion of capital by the Government of India has been timed well to enable the banks to manage the transition while not breaching any regulatory capital limits. It is a requirement when we are in the international capital market. We have to follow the rules that the rest of the world follows. We cannot be having separate rules for the banking system which is integrated with the rest of the world. If you include the budgeted amount for this year over the last four years, the capital infusion into our banks will be Rs. 2,15,000 crore, if my calculation is correct. The Reserve Bank also committed to facilitate a smoother transition as much as prudentially possible. In particular banks were given additional time to make provisions for cases referred under IBC on the RBI direction which wou....
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....tion process since in the experience of RBI, the earlier schemes were not effective and result oriented. 99. Reverting to Kalpana Mehta this Court notes that the Constitution Bench further also dealt with the question of what would be the persuasive or binding character of Parliamentary Reports when a factual finding recorded therein is challenged or disputed. In my respectful view, Kalpana Mehta cannot be read as having laid down a proposition that even in a circumstance where there is a challenge to the recommendations contained in a report of the Standing Committee, the same would be liable to be ipso facto applied and accepted. This is evident from the extracts of the decisions of the Constitution Bench which are referred to hereinafter. 100. The Hon'ble Chief Justice of India who was joined by A.M. Khanwilkar, J. dealt with this aspect in the following manner: "95. Rule 274(3) is extremely significant, for it provides that the report of the Committee together with the minutes of the dissent, if any, is to be presented to the House. Rule 277 stipulates that the report is to have persuasive value. In this context, Rule 277 is worth quoting: 277. Repor....
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.... 144. It is worthy to note here that there is an intrinsic difference between parliamentary proceedings which are in the nature of statement of a Minister or of a Mover of a bill made in the Parliament for highlighting the purpose of an enactment or, for that matter, a parliamentary committee report that had come into existence prior to the enactment of a law and a contestable/conflicting matter of "fact" stated in the Parliamentary Committee report. It is the parliamentary proceedings falling within the former category of which Courts are enjoined under Section 57, subsection (4) to take judicial notice of, whereas, for the latter category of parliamentary proceedings, the truthfulness of the contestable matter of fact stated during such proceedings has to be proved in the manner known to law." 101. Similarly D.Y. Chandrachud, J. in his opinion observed thus: "265. There may, however, be contentious matters in the report of a Parliamentary Committee in regard to which the court will tread with circumspection. For instance, the report of the committee may contain a finding of misdemeanor involving either officials of the government or private individuals bearing on a....
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....anct. In paragraph 21 following observation was made: "21....The view of the Parliamentary 107 Standing Committee with regard to the expediency of the Search/Selection Committee taking decisions when vacancy/vacancies exists/exist is merely an opinion which the executive, in approve. The said opinion of the Parliamentary Standing Committee would therefore not be sacrosanct. The same, in any case, does not have any material bearing on the validity of the existing provisions of the Act." 448. The apprehension of the respondents that their case shall be prejudiced opinion is misplaced. By acceptance of a Parliamentary Committee report in evidence does not mean that facts stated in the Report stand proved. When the adjudicatory function of the Court which may differ from case to case. binding of what has been concluded in the Report. When adjudication of any entire material brought before it. When the Parliamentary Committee report unfounded. We are, thus, of the opinion that by accepting Parliamentary this Court, the respondents' right to dispel conclusions and findings in the accordance with law." 103. From the above, it is clear that the proposition as broadly f....
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....or being in possession over the assets and transferring the same to the creditor. The Reforms Committee noticed the contract between equity and debt underlying the existence of a limited liability company. It went on to observe that while the equity owners must be granted complete control as long as debt obligations are met, when a default takes place control must stand transferred to the creditors and then equity owners can have no say. It noticed the position in India of promoters continuing to stay in control of the company even after the default. Dealing with the same it went on to hold that in case of a defaulting firm appropriate disposition in respect thereof is a business decision which only the creditor should be permitted to make. The relevant extracts of the Reforms Committee report read thus:- "The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, laws in India have brought arms of the government (legislature, executive or judiciary) into this question. This has been s....
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....of the stressed asset does not deteriorate. The submission therefore that the initiation of the proceedings under the IBC amounts to a death knell for the corporate debtor is clearly misconceived. In fact the submission of prejudice flies in the face of the basic ethos underlying IBC itself. It is the statutory code which mandates the removal of existing management and the takeover of the corporate debtor by the Resolution Professional. This statutory mandate is designed to be set in motion the moment there is a default. The foundational mandate of IBC is the expeditious take over of the corporate debtor on default and to implement a RP. That a default has occurred is not disputed before us. The conceptual and tectonic shift in the statutory regime cannot be reversed or halted. 107. Insofar as the impact of existing restructuring proposals or initiatives triggered prior to 12 February 2018, as rightly pointed out by Sri Dwivedi, these measures do not stand "evaporated" but are merely to be continued and processed in accordance with the impugned directive. This the Court notes notwithstanding that in the IPPA and APP proceedings there is no disclosure whatsoever of any existing r....
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....rotective measures for a particular industry/sector. When it proceeds to formulate monetary policy, it does so primarily bearing in mind the state of the financial institutions of the country, the position of debt and other germane issues touching upon monetary stability and the efficient deployment and utilization of credit. Ultimately whether a modulation of the terms of the impugned directive is merited is a subject that should be left for the consideration and expertise of RBI. In any view of the matter, the Court notes the provisions of section 7 of the 1934 Act which embodies the consultative mechanism to be initiated in case the appropriate authorities do feel the need for amendment or modulation of the policy measure. This exercise must be left to be initiated and undertaken by the respective authorities. However, if the two organs are at variance, the Union should consider whether the circumstances warrant the initiation of the consultative process. 111. The submission of Sri Kadam that there could be a challenge raised against the RBI itself in case it were to frame policies on a sectoral basis also merits consideration. On the whole, the submissions advanced on behalf....
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....471, dealing with the validity of Section 45 S of the 1934 Act and the powers of the RBI, the Supreme Court observed: "26. ..........But these were matters of economic policy. They are best left is that the courts should not interfere. Moreover in the context of the should not be lightly interfered with. The consequences of such interdiction can have large-scale ramifications and can put the clock back for a number of years. The process of rationalisation of the infirmities in the economy can to be taken at all . " 114. Having noticed the parameters of judicial review which must necessary be borne in mind, I am of the considered opinion that at this stage and on a prima facie evaluation, the impugned directions cannot be said to be so patently arbitrary or in defiance of logic so as to be tampered with presently and at the interim stage. K. WHETHER THE PETITIONERS HAVE MADE A CASE FOR INTERIM RELIEF 115. Ultimately, the grant of interim relief in all cases must necessarily be considered on the strength of individual facts placed before a Court of law. It is incumbent upon the petitioners to establish the existence of a strong prima facie case, balance of convenien....
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....one sense addressed and canvassed in the abstract. We have also not been apprised of the financial position of any of the members of IPPA and APP so as to evaluate the merits of their claim for grant of interim relief. The absence of disclosure with regard to the financial status of the individual members or the views of the lenders themselves being placed before this Court is a circumstance, which weighs heavily against them when considering the issue of grant of interim relief. 117. The oral submission which was addressed for the consideration of the Court was that in many cases restructuring plans were in the process of being implemented or formulated and that the impugned directive would result in these measures being effaced completely. This Court is constrained to note that at least in the IPPA and APP petitions, no details whatsoever of any such restructuring processes having been set in motion in respect of their members have been disclosed. 118. Insofar as the case of Prayagraj Power Generation is concerned Sri Navin Sinha learned senior counsel has additionally referred to the acceptance of a proposal by a corporate entity to purchase the equity held by the lenders.....
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....note that RBI is not co-opted in the HLEC. In what backdrop the impugned directive is likely to be considered, if at all, in the absence of the author itself being part of the HLEC was left unknown and uncertain. However the learned ASG in the course of his oral submissions stated that the Union would invite RBI to participate in proceedings before the HLEC thus enabling it to place its views before it including the merits of the impugned directive issued by it. In light of the statement of the learned ASG, it would appear to be expedient in the interest of justice to accept the stand of the Union and permit participation of the RBI before the HLEC. 123. I must however record a note of caution here. The participation of RBI before the HLEC is noticed solely on account of the statement and submission of the learned ASG. However while not standing in the way of the stated stand of the Union in this regard, the Court does not intend to hold that RBI shall be bound by the report/recommendations or the majority view that may come to be forged before the HLEC. L. THE ARGUMENT OF DISCRETION OF BANKS UNDER IBC 124. It was vehemently contended on behalf of the petitioners that sect....
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....f the independent statutory powers conferred on two collaborative organs of the State. The answer to this complex question would clearly merit further and in depth consideration of the provisions of the 1949 and 1934 Acts, the roles of the Union Government/RBI, the weight to be attached to competing views as well as the recognition of a space for conflict resolution and of a consensus being arrived at. 127. While the Court recognises the position of preeminence which the RBI enjoys, it also cannot ignore the following pertinent observations made by the Supreme Court in Joseph Kuruvilla Vellukunnel Vs. Reserve Bank of India AIR 1962 SC 1371:- "31. ........Further, we do not think that the possibility that the procedure under Sections and (3)(b)(iii) may be invoked in some cases and the be said that the Reserve Bank would act arbitrarily from case to case. The enough for it to heed. If the Reserve Bank were to act mala fide, the Central Government and in the last resort, the Courts, will be there to intervene. In our judgment, the provisions of Sections and (3)(b)(iii) cannot be said to be a breach of Art. 14 of the Constitution." In the end the Court is faced with the....
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....ays could not be permitted to commence prior to 21 May 2018. On the other hand, RBI contends that the credit rating report is only an aid to the formation of opinion by the lender whether to accept or reject the final RP and not a pre condition. This contention has been vehemently opposed by the petitioners. The Court can always deal with the merits of this submission at the time of final hearing. However even here in the absence of any material in evidence of an imminent threat, the Court is not persuaded to extend the period of 180 days in the interim or to restrain an individual lender from initiating steps under the IBC. Ultimately what has weighed while arriving at this conclusion is the absence of lenders before the Court, their individual views not being known and the serious issue of the health of the financial sector of the country and its overall impact on public debt. Measures adopted to address such complex economical issues must at present, be left to the wisdom of experts. 130. The Court has also been referred to the recent decision rendered by the Supreme Court in Chitra Sharma and Others Vs. Union of India and others Writ Petition (Civil) No. 744 of 2017 decided ....
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.... the banking sector, rising status of NPA's, declining profitability of public sector banks, steady erosion of profits, majority of banks not even meeting the minimum capital requirements, the huge infusion of funds by the Union Government to shore up the banking system as a whole, the experience of RBI of existing schemes not being sufficiently strong to deal with resolution of stressed assets with expediency, all of which appear to have acted as the backdrop in which the impugned directive came to be issued. The amendments to the 1934 and 1949 Acts, the express authorization in favour of the RBI by the Union Government, viewed cumulatively, indicate the intent to sufficiently empower RBI to deal with the subject of stressed assets. In such situations, the Court must necessarily be circumspect and tread with caution keeping the principles of "judicial deference" and "institutional competence" in mind. Ultimately the question of weighing competing economic factors, choice of fiscal measures liable to be adopted must not be interfered with lightly unless established to be palpably arbitrary. The petitioners have failed to meet this benchmark at the present. The petitioners have woef....