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The Gujarat High Court today rebuked the Reserve Bank of India for asking the National Company Law Tribunal in its June 13 directive to give priority to the insolvency proceedings against companies with huge debts.
It also questioned the functioning of the central bank.
The bench of Justice S G Shah came down heavily on the RBI for stating in its press release dated June 13, 2017 that the Insolvency and Bankruptcy Code (IBC) proceedings against companies with outstanding dues of more than Rs 5,000 crore "will be accorded priority by NCLT."
Essar Steel had moved the high court challenging the RBI order to banks.
The court also questioned the "functioning" of the RBI for its decision to issue the press release in which it had directed banks to initiate insolvency proceedings against defaulting companies.
"The RBI has to be careful while issuing press releases, it must be in consonance with the Constitutional mandates, based upon sound principles of law, but in any case should not be in the form of advise, guidelines or directions to judicial or quasi-judicial authorities in any manner what so ever," the court said in its order.
Further reacting to the central bank's submission that it has no document on record based on which the decision to issue press release was taken, the court said, "This goes to show the manner in which the RBI is functioning, in as much as there is a press release even without a decision at certain level that press release is to be published and what should be included in such press release."
"This is also an equally serious issue. It has been conveyed to the respondents that on such disclosure that there is no other document, pursuant to such disclosure, now, they would be debarred from relying upon any such document, if any," it added.
The court interpreted RBI's statement in its press release that "such cases (for insolvency proceedings) will be accorded priority by the NCLT" that the tribunal "has to give priority to cases filed by the directives of RBI against the cases, which are filed by other creditors or petitioners before the NCLT."
The RBI even tendered an apology to the court saying that the statement was made due to "poor drafting" of the press release, and even issued corrigendum on July 8, to delete the line.
Through it press release dated June 13, the RBI had directed banks to launch IBC proceedings against companies with outstanding dues of more than Rs 5,000 crore, and for other NPAs, banks should finalise resolution plans in the next six months.
Essar Steel had moved the high court seeking the court's direction to quash the RBI's direction to the banks to initiate insolvency proceedings against it.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)