Reserve Bank of India
The Supreme Court on Tuesday quashed the RBI circular of 2018 that pertains to the provisions for declaring a company bankrupt even on a one-day overdue.
The Reserve Bank of India's (RBI) February 12, 2018 circular said that lenders had to provide for resolution plan within 180 days in case of large account of Rs 2,000 crore and above.
Let us see what the Supreme Court verdict means for the RBI, banks and companies:
What was the February 12 circular all about ?
- RBI made a One-Day Default Rule in which the banks had to treat a comapany as defaulter even if it misses repayment schedule by a day.
- A Immediate Resoluion Plan was put up by RBI, the lenders were told to put in place board-approved policies for resolutin of stressed assests.
- As far as the timeline is concerned, RBI circular mandates lenders to file insolvency applications if default presists for 180 days from and after March 1,2018 for debts with aggregate exposure of more than Rs 2,000 crore.
- RBI circularal mentioned about scrapping of past resolution mechanisms. Framework for revitalising distressed assests, corporate debt restructuring scheme, flexible strcting of existing long term project loans, strategic debt Restructing scheme (SDR), change in ownership outside SDR, and Scheme for substainable structuring of stressed assets (S4A) were withdrawn.
What was the SC Verdict ?
- RBI can not make an all-season circular for every defaulter agnostic of sectors. The February 12 circular has no legal validity.
- But under section 35AA, government has given power to RBI to direct banks to refer to NCLT only in specific cases-where there is a defalut- such as the first 12 large cases.
What will the Impact of the verdict ?
- Relief to specific sectors such as power, sugar and shipyard.
- Resolution contemplated for Jet Airways may be delayed.
- Defaulting borroweres in those cases may challenge banks.
- Banks planning for higher recovery though NCLT cases intiated with with specific reference to februray 12 circular becomes null and void.
