The Supreme Court’s order quashing the RBI’s Feb 12 circular will give the Centre discretionary power to issue a direction to the apex bank for referring a defaulting firm to the NCLT on a case by case basis in public interest, official sources said.
Supreme Court
New Delhi:
However, the SC had upheld the constitutional validity of Section 35AA of the Banking Regulation Act, which empowers the Centre to act, either directly or by directing RBI to take action against defaulters. Section 35AA empowers the central government to authorise the RBI to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the IBC. Sections 35AA and 35AB were introduced by an amendment to the Banking Regulation Act in May 2017.
Sources said the order on the RBI’s circular does not limit government powers to give directions to PSU banks in resolving non-performing assets. Prior to the circular, the resolution mechanism available to banks were Corporate Debt Restructuring Scheme, Scheme for Sustainable Structuring of Stressed Assets, and Joint Lenders’ Forum. Following the SC order restructuring schemes like S4A may come back, the sources said.
Revised framework for resolution of stressed assets issued on February 12, 2018 invited criticism from various quarters, including a parliamentary panel.
The SC on Tuesday quashed the RBI circular of last year that pertains to the provisions for referring the defaulter to the National Company Law Tribunal (NCLT) even on a one-day overdue.
However, the SC had upheld the constitutional validity of Section 35AA of the Banking Regulation Act, which empowers the Centre to act, either directly or by directing RBI to take action against defaulters. Section 35AA empowers the central government to authorise the RBI to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the IBC. Sections 35AA and 35AB were introduced by an amendment to the Banking Regulation Act in May 2017.
Sources said the order on the RBI’s circular does not limit government powers to give directions to PSU banks in resolving non-performing assets. Prior to the circular, the resolution mechanism available to banks were Corporate Debt Restructuring Scheme, Scheme for Sustainable Structuring of Stressed Assets, and Joint Lenders’ Forum. Following the SC order restructuring schemes like S4A may come back, the sources said.
Revised framework for resolution of stressed assets issued on February 12, 2018 invited criticism from various quarters, including a parliamentary panel.