The Allahabad High Court will hear on August 2 the plea of power producers against the Reserve Bank of India circular that mandates insolvency proceedings for a debt servicing default beyond 180 days.

A RBI circular dated February 12 had mandated banks to initiate insolvency proceedings against firms that default on servicing debt beyond 180 days. Power sector players had claimed that this provision was unfair to them as their debt servicing capability was directly linked to payments from power distribution companies and coal availability. Both of which are heavily regulated by State and Central governments.

In a June 1 order, the Allahabad High Court had directed the Finance Ministry to hold meetings with all stakeholders. The court had asked the Finance Ministry and the RBI to consider the grievance of power producers and see if any solution outside the RBI’s resolution process is possible.

News reports had also said that the court had put a stay on the RBI circular.

Amit Saxena, Counsel for RBI in the case, told BusinessLine, “The Allahabad High Court has not put a stay on the RBI circular for a single day. This is deliberate misinformation being spread by the power producers. The next date of hearing has been fixed at August 2 upon the request of the Centre.”

The Finance Ministry and the RBI are to present a report and their position on the stress in the power sector during the hearing.

Power sector representatives also said that there is a difference of opinion between the RBI and the Ministry of Finance. To this, Saxena said, “There has been no difference of opinion between the RBI and the Centre put on record at any point.”

An Association of Power Producers Statement said, “The final report/stand of the Union of India is still under deliberation between them and they requested further 15 days time for filing of the report.”

The court also refused to offer an interim relief to the power producers from the circular but said that they were free to approach the court in the event of any coercive action by the banks citing the RBI circular till August 31.

The APP said, “Senior Counsel S Powaiyya vehemently pressed for the interim reliefs with different set of arguments however the RBI counsel opposed the same stating that under the circular the coercive actions will begun only after lapse of 180 days as such there is no occasion for grant of any interim relief.” “During the course of arguments, the Bench observed that it has already kept the option of aggrieved party open to approach the court with application in case of any coercive action,” the statement added.