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2018 (3) TMI 557

ing the framework Petitioner in the instant Petition, is virtually seeking a direction against the JLF not to proceed with the matter before the adjudicating authority under the IBC and to virtually disregard the directives. In fact, those directives issued to the JLF and initiation of proceedings under IBC before the adjudicating authority is a subject matter of grievance by the Petitioner company. It is the Petitioner company, as recorded above, which has not brought in the upfront contribution, mandated under the directives of the RBI and as instructed by JLF. - One of the CRAs appointed by the RBI does not find the residual debt of the Petitioner to be investment grade and thirdly, all the lenders have not signed the MRA. Considering these factors, it is difficult to accept the contention of the Petitioner that the MRA has been operationalized. In view of the policy declared by the RBI on 12 February 2018, since the scheme itself has been withdrawn, any direction for implementation and enforcement of the said scheme, cannot be issued. This court cannot be unmindful of the fact that the RBI has withdrawn all the schemes relating to the financial restructuring, by declaring .....

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3 December 2017. The Petitioner has also prayed for grant of interim relief, restraining Respondent Nos. 2 to 13 from initiating or prosecuting any proceedings against Petitioner No.1­JNIL under the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal, Mumbai, pursuant to the directives issued by the RBI. 3. The Petitioner company has a large quantum of stressed assets and it was classified as Non­performing Assets (NPA) w.e.f 31 January 2015. The RBI has released the framework for a revitalizing distressed assets in the economy. The framework outlined the steps towards the early recognition of the financial distress, steps for resolution and fair recovery for lenders. 4. The RBI issued detailed guidelines for formation of Joint Lenders Forum (JLF) and adoption of Corrective Action Plan (CAP) for operationalizing the framework. The JLF guidelines also prescribed that the lenders can formulate and sign an agreement, which may be called JLF Agreement, incorporating the broad rules for functioning of JLF. It also prescribed that, while JLF formation and subsequent corrective actions will be mandatory in the accounts, having aggregate exposure of .....

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the Reserve Bank for bank loan ratings. 3. In this context, it is further advised that the assignment of CRAs for the resolution plans, and the payments to the CRAs for the same, will be made by the Reserve Bank of India. The lead bank should forward the list of the accounts for which resolution plans outside IBC are being considered, along with the number of such proposals being considered/received for each account. The Reserve Bank will accordingly assign two CRAs for each proposal. 9. It is the contention of the Petitioner that before issuance of directions by the RBI, the SBI on behalf of JLF had already appointed CRAs and the work had also commenced. The SBI tendered two representations to RBI on 17 October 2017 and 6 December 2017 bringing the fact of appointment of two CRAs i.e. CARE and SMERA to the notice of RBI and sought ratification of appointment of two CRAs made by it. It is the contention of the Petitioner that the RBI did not instruct the bank, not to proceed with the appointment or forthwith discontinue the same or wait for the appointment of two CRAs to be made by the RBI. The Petitioner contends that the appointment of the CRAs was made correctly by the SBI, from .....

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ditions specified in the respective RBI guidelines, relating to the specific resolution scheme being adopted have been complied before the deadline. In case of generic restructuring, these will include the requirements relating to the promoters' contribution to be brought upfront and personal guarantees to be provided by the promoters. 11. The status of MRA was also discussed. The forum confirmed that 10 out of 12 lenders of the company barring Oriental Bank of Commerce and IDBI Bank Limited with around 92% of the value had sanctioned restructuring scheme. After seeking information from Lender Legal Council (LLC), that the MRA could be signed in the absence of sanction from 2 member banks. The MRA was executed by ten lenders, except IDBI Bank Ltd. and Oriental Bank of Commerce and the company representative and was handed over to the SBI. 12. According to the Petitioner, how the conditions having been met before the deadline of 13 December 2017, there is no other option to the RBI except to allow the JLF to implement MRA. The three conditions namely, the promoters contribution to the satisfaction of JLF has been brought in and the satisfaction of JLF cannot be substituted by an .....

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er in JLF, would be considered as the basis for deciding the CAP and will be binding on all lenders, subject to exit (by substitution) option available in the framework. 15 The RBI, on 22 May 2017, issued a press release setting out the action plan to implement the Banking Regulation (Amendment) Ordinance, 2017. The changes that were brought about to the existing regulations dealing with the stressed assets were- (i) with a view to facilitating decision making in JLF, consent required for approval of proposal was changed to 60% by value instead of 75%, while keeping the number at 50%; (ii) the banks who were in minority on the proposal approved by JLF are required to either exit by complying with the substitution rules within the stipulated time or adhere to the decision of the JLF; (iii) participating banks have been mandated to implement the decision of JLF without any additional conditionality; (iv) the Boards of the bank were advised to empower their executives to implement JLF decisions without further reference to them. In respect of CRAs, with a view to prevent rating­shopping or any conflict of interest, the RBI stated that it is exploring the feasibility of rating assi .....

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BI that on careful examination of the request made, the RBI regretted and express inability to accede to the request in respect of granting dispensation. On 30 November 2017, the Petitioner expressed willingness to contribute in the form of share application money. However, the infusion of the contribution was also not before the deadline prescribed by the RBI, since the infusion of amount of share money was subject to the approval by the Board. On 6 December, 2017, the SBI wrote to the RBI informing that the bank has already assigned the residual rating to the CARE and SMERA in accordance with the decision of the Core Committee of Lenders. The CRAs have accorded investment grade rating of BBB­ to the residual debt of the company. It was requested to permit to have rating from CARE and SMERA. It is further recorded that the promoters of the company have now agreed to bring in promoters contribution upfront in the form of cash, conversion of unsecured loan brought by the promoters or transferring equity of the company by promoters to the lenders to compensate for their sacrifice as per extent RBI guidelines. The restructuring process involves conversion of debt into equity which .....

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that the CRAs appointed by the RBI, in terms of its policy has not certified residual debt of the company to be investment grade. The RBI has not accepted the credit rating by SMERA. The decision of the RBI, which is a Banking Regulatory Authority having expertise, cannot be a matter of review under the writ jurisdiction, firstly because the decision making process involves a specialized expertise and secondly, the satisfaction arrived at by the regulatory bank, need not be substituted by the opinion of the Court (ii) the MRA has admittedly been not signed by all the parties. It is the contention of the Petitioner that since the creditors more than 92% in value and more than 50% in numbers have signed the MRA, the same shall be accepted. The directives issued by the RBI prescribe that MRA shall be signed by all the parties. In the instant matter, two lending banks have admittedly not signed the MRA. In the event, any bank refuses to sign, must exit in accordance with the policy. In the instant matter, two non­signing lending banks have not exited in accordance with the procedure. The contention of petitioners that the non­signing banks have voted in favour of the CAP in the .....

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iew of above, the requirement in respect of the implementation of the resolution plans has not been fulfilled. The insolvency proceedings have already been initiated by the SBI in terms of the directives issued by the RBI. 19. It is contended on behalf of the Respondent­RBI that, the function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of authority committed to it. It must act in good faith and it must act reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the Courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies. In such matters, even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts. (Peerless General Finance and Investment Co. Limited & Anr. Vs. Reserve Bank of India (1992) 2 SCC 343). It would also be useful to record the observations in paragraph .....

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en these are added to the complexity of economic regulation, the uncertainty, the liability to error the bewildering conflict of the experts, and the number of times the judges have been overruled by events ­ self­limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. 20. The principles laid down in the matter of Peerless General Finance and Investment Co. Limited & Anr.(Supra) have been reiterated by the Supreme Court in Balco Employees' Union (Regd.) Vs. Union of India & Ors. (2002) 2 SCC 333 21. There cannot be disagreement as regards the object of JLF in making efforts to execute MRA, is to ensure a resolution and restructuring of the corporate debt. The process of resolution is also provided under Chapter­II of the Insolvency and Bankruptcy Code, 2016. The corporate debtor or a financial creditor or an operational creditor can initiate corporate resolution process in view of Sections 6 and 7 of the IBC. An operational creditor may also approach for insolvency resolution under Section 8 of the IBC. There is a time limit prescribed for insolvency resolution process, so also a declaration of moratorium and public .....

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er the IBC and to virtually disregard the directives. In fact, those directives issued to the JLF and initiation of proceedings under IBC before the adjudicating authority is a subject matter of grievance by the Petitioner company. It is the Petitioner company, as recorded above, which has not brought in the upfront contribution, mandated under the directives of the RBI and as instructed by JLF. One of the CRAs appointed by the RBI does not find the residual debt of the Petitioner to be investment grade and thirdly, all the lenders have not signed the MRA. Considering these factors, it is difficult to accept the contention of the Petitioner that the MRA has been operationalized. In view of the policy declared by the RBI on 12 February 2018, since the scheme itself has been withdrawn, any direction for implementation and enforcement of the said scheme, cannot be issued. This court cannot be unmindful of the fact that the RBI has withdrawn all the schemes relating to the financial restructuring, by declaring new financial policy on 12 February 2018. The new policy appears to have been declared by RBI for the reason that the NPA, in the Nationalized banks, have touched almost 8 lakhs .....

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