Power NPAs: SC transfers all pleas challenging RBI notification to itself

Besides 34 stressed power assets, shipping and sugar companies had also sought relief from the RBI notification

In a temporary relief to stressed assets, the Supreme Court on Tuesday asked banks not to refer any case for insolvency under the February 12 circular of the Reserve Bank of India (RBI) for the next two months.

The apex court also transferred to itself all cases challenging the notification. The next hearing has been fixed for November 14.

Besides stressed power assets, shipping and sugar companies had also sought relief from the RBI notification. Among the petitioners were Punj Lloyd, the South Indian Sugar Mills Association-Tamil Nadu, Dharani Sugar & Chemicals, the Shipyards Association of India, and the All India Bank Officers’ Confederation.  

Stressed companies would have headed to the National Company Law Tribunal (NCLT) since the RBI notification required the lenders to refer the defaulting cases for insolvency within 15 days of expiry of 180 days from March 1, 2018. The 15-day period ended on Tuesday.

Nine of the 34 stressed thermal power assets were nearing a resolution outside the NCLT. These will be the ones which will benefit the most from the apex court ruling. A senior executive of State Bank of India said the effort to resolve NPAs outside the Insolvency and Bankruptcy Code (IBC) would continue for power companies. SBI’s Sashakt scheme will provide the platform to do this.

Essar Power, RKM Power, IL&FS, GMR Energy, Rattan India and KSK Mahanadi had filed cases in various high courts against the RBI circular after an Allahabad High Court order on August 27 did not grant any relief on petitions filed by industry associations.

“The order has provided a great relief to stressed assets in the power sector. This would provide time for bankers to finalise resolution plans for projects of about 13 GW in their final stages and the High Level Empowered Committee to submit its report on corrective actions,” said A K Khurana, director general, Association of Power Producers.

The government had set up a High Level Empowered Committee under the Cabinet secretary to formalise resolution plans for the sector. The committee has members from the ministries of coal, power, finance and railways and is scheduled to submit its report by September 29.

Banks could resolve companies which were yet to be referred to the NCLT. However, there are over two dozen projects that still face an uncertain future and the court directive enables them to bide time. Besides, the status quo would remain in cases which have been referred to the NCLT.  

Commenting on this, Saurav Kumar, partner, IndusLaw, said the order now meant some sort of an extension had been granted to all the companies affected by the February 12 circular. “The resolution for most will not be easy. If no resolution is reached, the delay will worsen the chances of finding a resolution under the IBC. The Supreme Court may not essentially rule that the February 12 circular is per se illegal, but may grant some more extension,” he said. 

While the government along with lenders has worked out resolution avenues for power sector companies, those in other sectors do not have much options. Pariwartan, floated by state-owned Rural Electrification Corporation, has been conceived to resolve issues through an Asset Restructuring Company (ARC). A senior REC official said the SC offered more time for Pariwartan. 

“We are in discussion with some equity partners, including banks, power sector PSUs, and financial institutions. We would look at assets that don’t find any value in the market,” said the official, adding that the approval of equity partners and other lenders was yet to come.

REC had earlier decided to look at 11 GW of stressed power assets, which, the official said, could change as some assets might find resolution.

What it means for power sector

• Only nine stressed power projects are undergoing a sale process, and they will likely find a buyer 

• The fate of the remaining 25 projects, which have not initiated any resolution so far, hangs in balance

• More time for reform schemes like Pariwartan, Sashakt and Samadhan, which have not taken up any project yet

• If not resolved now, stressed assets may find it difficult to attract suitors as their debt situation will worsen

(With inputs from Abhijit Lele, Mumbai)