SC judgment on petition against RBI's February 12 circular today

The Supreme Court of India will on Tuesday pronounce its judgement in the companies’ challenge to the Reserve Bank of India’s February 12 circular.

A two-judge Bench of Justice Rohinton Fali Nariman and Justice Vineet Saran had heard the companies’ who had moved the apex court against the circular.

The banking sector regulator in this circular had allowed 180 days for debt resolution, failing which the asset would have to be taken to National Company Law Tribunal (NCLT) for initiation of insolvency against them. The deadline got over on August 31, 2018.

 The cases challenging the circular were filed in several High Courts by Essar Power, RKM Power, IL&FS, GMR Energy, Rattan India and KSK Mahanadi. Besides power, shipping and sugar companies have also sought relief from the RBI notification.

Hearing petitions filed by power industry associations - APP and IPPAI on behalf of all 34 stressed power assets, the Allahabad High Court had on August 27 denied any relief. Following the high court order, the companies had moved the top court which transferred all the cases to itself. The apex court had then stayed insolvency proceedings against these companies until further orders.  

There were some companies which had challenged the validity of the Insolvency and Bankruptcy Code itself, while others had questioned the constitutional validity of the RBI's February 12 circular. Power companies, however, had sought temporary relief from the circular only for themselves.

In their submissions, the power companies had alleged that RBI’s was based on a 'one-size-fits-all' approach without taking into consideration factors such as the reasons for non-payment, power companies.

Citing that in their case, the supply side as well as the demand side was under the watchful eyes of regulators, the power companies had said that the sector should have been exempted from the RBI’s diktat.

“On the supply side, there is a shortage of coal. How do I get coal? And if I get coal, whether I will get linkages or not is another question. On the demand side, I cannot increase my tariff. Even if I approach the regulator to seek permission to do the same, it would take at least 2-3 years,” the counsel appearing for one of the power companies had told the court.

The RBI on the other hand, while defending its circular, had told the top court that stressed accounts which were affected had not yet come up with a resolution plan, despite ample time having been given to them. The banking sector regulator had then also suggested that if the companies were ready with a plan, a time of 15-30 days could be given to them.