SC's order on RBI circular: A short delay useful to clear the path ahead

The stay can be seen as digging of the roads for metro work so that future traffic will reduce and mass transit be a reality

Legal experts share implications of the recent Supreme Court stay on the RBI's February circular regarding insolvency and bankruptcy proceedings.

It is unnecessarily alarmist to claim the insolvency process is stuck in quicksand because of the recent Supreme Court order staying the RBI circular of February 2018 mandating banks to initiate IBC process in 180 days after the circular.

The Indian Bankruptcy Code is a new law, with a narrow but deep mandate of extracting loans from defaulting companies through restructuring. If that does not work within the narrow time frame prescribed, send the company into liquidation. The first principle of the process has been that the timelines are sacrosanct once IBC filing is triggered, and the RBI tightened the screws by mandating immediate triggers for a large number of companies that owed money to banks.

William Blake said that the same law for the lion and ox is oppression and injustice. Similarly, where companies have defaulted for reasons outside their control, especially where price controls have caused such defaults, a fresh look at the equity and justice may, or indeed may not, be required. In many cases, the strict timeline may not be fair, for the simple reason that the governments, the Centre and states, are re-looking at many of the price-fixing and other policies which have caused the stress. 

Sandeep Parekh Managing partner, Finsec Law Advisors

In many cases, a restructuring is underway and the companies and the banks require some further time to come to an agreement. In most of these policy initiatives, like in the power sector, the RBI is not part of the discussion, and thus two processes are going on without coordination.

The short delay of two months, by judicial standards, the blink of an eye, would indeed be useful if the ultimate outcome is a more certain and clear path ahead. While few disagree that the toxic, and indeed often corrupt granting of loans needed a thorough detoxification, whether a little bit of extra leeway can be granted in some sectors needs to be seen from a constitutional perspective of equality. The stay can then be seen as digging of the roads for metro work so that future traffic will reduce and mass transit will be a reality.

The views expressed are personal