The Reserve Bank of India (RBI) in its submission to the Allahabad High Court, which is hearing a case filed against the Insolvency and Bankruptcy Code (IBC), said that the resolution of stressed assets through this route was a commercial decision taken by the central bank and creditors and it should not be thrust upon the judiciary.
“Control over company is not a divine right. If the promoters default, the creditor will take over the company and manage it. Thus, the IBC is a creditor-driven legislation,” said the RBI in its submission.
In a circular dated February 12, the central bank mandated that banks should classify even one day’s delay in debt servicing as default. The notification mandates resolution proceedings against stressed accounts to be completed in 180 days.
The Centre in its submission to the Allahabad High Court in July sought regulatory relief and time extension for close to dozen power projects with debt exposure of around Rs 1 trillion, out of a total of 34 stressed assets.
Hitting back at the Centre, the RBI said there was no recognised category such as “genuine defaulters”. The law should be applied equally to all. If it is not, then it is a violation of Article 14 of the IBC.
“In any event, it is the central government’s responsibility to issue directions and not the court’s, under Article 226,” it said, “The RBI cannot extend the timeline further, as enough opportunities have been given to promoters. It is duty-bound to resolve the issue of stressed assets in a time-bound manner.”
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At the same time, the Standing Committee on Energy in its latest report on the “impact of the RBI’s new framework on resolving stress in the power sector” noted that the central bank did not consider the issues of the power sector while issuing a blanket clause on all sectors.
To this, the RBI said, “Parliamentary standing committee reports have no binding value. The amendments brought about in the Banking Regulation Act give power to the RBI to resolve the stressed assets. The RBI has passed the impugned circular in pursuance of these statutory powers. If the central government gives specific directions to the RBI, it will comply.”
The central bank also said the RBI is bound to act in a sector-agnostic manner. “It has considered all the exigencies in this regard and is an expert in this field. The classification has been done on the basis of liability and recoverability. Therefore, it has a rational nexus to the object sought to be achieved,” it said.
The next date of hearing is on Friday, when the power producers will make their submission.