The Supreme Court on Tuesday set aside Reserve Bank of India (RBI) circular that gave defaulting companies 180 days to agree on a resolution plan with lenders or be taken to bankruptcy court to recover debt of Rs 2,000 crore and above. The bench said the February 12, 2018, circular was beyond the scope of the RBI’s powers.
“The impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law,” said the two-judge bench led by justice RF Nariman. “Consequently, all actions taken under the said circular, including actions by which Insolvency Code has been triggered must fall along with the said circular.”
The new SC ruling will be a relaxation for the big sharks like GMR Energy, Jaypee Group, Essar Group and Reliance Power.
Debt worth ₹3.8-lakh crore across 70 large borrowers came under the Insolvency and Bankruptcy Code (IBC) for resolution after the RBI issued the circular on February 12, 2018.
However, financial industry experts said the court ruling spells bad news for the banking sector, as recovery of debt could get delayed. Srikanth Vadlamani, Vice-President, Financial Institutions Group, Moody’s Investors Service, said: “The RBI circular had significantly tightened stressed loan recognition and resolution for large borrowers. With the voiding, this may now have to be watered down.”