Home Case Index All Cases Indian Laws Indian Laws + SC Indian Laws - 2019 (4) TMI SC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (4) TMI 230 - SC - Indian LawsConstitutional validity of Sections 35AA and 35AB of the Banking Regulation Act, 1949 - real bone of contention is a Reserve Bank of India (RBI) Circular issued on 12.02.2018, by which the RBI promulgated a revised framework for resolution of stressed assets - Held that:- Section 21 makes it clear that the RBI may control advances made by banking companies in public interest, and in so doing, may not only lay down policy but may also give directions to banking companies either generally or in particular. Similarly, under Section 35A, vast powers are given to issue necessary directions to banking companies in public interest, in the interest of banking policy, to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the banking company, or to secure the proper management of any banking company. It is clear, therefore, that these provisions which give the RBI certain regulatory powers cannot be said to be manifestly arbitrary. When it comes to lack of any guidelines by which the power given to the RBI is to be exercised, it is clear from a catena of judgments that such guidance can be obtained not only from the Statement of Objects and Reasons and the Preamble to the Act, but also from its provisions. A cursory reading of Section 35A makes it clear that there is nothing in the provision which would indicate that the power of the RBI to give directions, when it comes to the Insolvency Code, cannot be so given. The width of the language used in the provision which only uses general words such as ‘public interest’ and ‘banking policy’ etc. makes it clear that if otherwise available, we cannot interdict the use of Section 35A as a source of power for the impugned RBI circular on the ground that the Insolvency Code, 2016 could not be said to have been in the contemplation of Parliament in 1956, when Section 35A was enacted. Dr. Singhvi’s contention must, therefore, fail. Section 35AA makes it clear that the Central Government may, by order, authorise the RBI to issue directions to any banking company or banking companies when it comes to initiating the insolvency resolution process under the provisions of the Insolvency Code. The first thing to be noted is that without such authorisation, the RBI would have no such power. There are many sections in the Banking Regulation Act which enumerate the powers of the Central Government vis-à-vis the powers of the RBI. The Banking Regulation Act specifies that the Central Government is either to exercise powers along with the RBI or by itself. The role assigned, therefore, by Section 35AA, when it comes to initiating the insolvency resolution process under the Insolvency Code, is thus, important. Without authorisation of the Central Government, obviously, no such directions can be issued. The default would mean non- payment of a debt when it has become due and payable and is not paid by the corporate debtor. Therefore, what is important to note is that it is a particular default of a particular debtor that is the subject matter of Section 35AA. It must also be observed that the expression “issue directions to banking companies generally or to any banking company in particular” occurring in Section 35A is conspicuous by its absence in Section 35AA. This is another good reason as to why Section 35AA refers only to specific cases of default and not to the issuance of directions to banking companies generally, as has been done by the impugned circular. The impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est. The transferred cases and petitions are disposed off.
|