TMI Blog2018 (8) TMI 1600X X X X Extracts X X X X X X X X Extracts X X X X ..... icate the intent to sufficiently empower RBI to deal with the subject of stressed assets. In such situations, the Court must necessarily be circumspect and tread with caution keeping the principles of “judicial deference” and “institutional competence” in mind. Ultimately the question of weighing competing economic factors, choice of fiscal measures liable to be adopted must not be interfered with lightly unless established to be palpably arbitrary. The petitioners have failed to establish a case for the grant of interim relief at this stage - Interim relief, at this stage, need not be granted. - Writ - c no. 18170 of 2018 With writ - C No. 23181 of 2018 With Writ - C No. 23183 of 2018 - - - Dated:- 27-8-2018 - Mr. Dilip B Bhosale, CJ And Mr. Yashwant Varma, J. For The Petitioners : Mr. Abhishek Manu Singhvi, Mr. Sajan Poovayya assisted by Mr. Ashish Mishra, Ms. Kalpna Sinha, Mr. R.P. Kushwaha, Mr. Visson Mukherjee, Ms. Catherine Ayallore, Mr. Milanka Chaudhery, Ms. Ashli Cherian Ms. Ameya Misra, learned Advocates For The Respondents : Mr. Tushar Mehta, learned ASG, Mr. Shashi Prakash Singh, learned ASG, assisted by Mr. Sanjay Kumar Om, learned Advocate, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this order. I, therefore, simply observe that the preliminary objection is rejected. 5. Respondent no.2 RBI through its Secretary, issued the circular in exercise of the powers under Section 35A, 35AA (read with S.O. 1435 (E) dated May 5, 2017 issued by the Government of India) and Section 35AB of the Banking Regulation Act, 1949 (for short BR Act ), and Section 45 (L) of the Reserve Bank of India Act, 1934 (for short 'RBI Act'), mandatorily directing the banking company/companies to initiate insolvency resolution process of stressed assets under the provisions of the Insolvency and Bankruptcy Code, 2016 (for short 'IBC'). The RBI has issued various instructions aimed at resolution of stressed assets in the economy, including introduction of certain specific schemes at different points of time. In view of the enactment of the IBC, it has been decided to substitute the existing guidelines with a harmonized and simplified generic framework for resolution of stressed assets . It would be advantageous to reproduce relevant portions of the circular. While paragraph 4 of the circular provides for Implementation of Resolution of Plan , paragraphs 5 to 7 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship in respect of 'large' accounts (i.e. accounts where the aggregate exposure of lenders is ₹ 1 billion and above), shall require independent credit evaluation (ICE) of the residual debt The residual debt of the borrower entity, in this context, means the aggregate debt (fund based as well as non-fund based) envisaged to be held by all the lenders as per the proposed RP by credit rating agencies (CRAs) specifically authorised by the Reserve Bank for this purpose . While accounts with aggregate exposure of ₹ 5 billion and above shall require two such ICEs, others shall require one ICE. Only such RPs which receive a credit opinion of RP4 Annex 2 provides list of RP symbols that can be provided by CRAs as ICE and their meanings or better for the residual debt from one or two CRAs, as the case may be, shall be considered for implementation. Further, ICEs shall be subject to the following: ( a) The CRAs shall be directly engaged by the lenders and the payment of fee for such assignments shall be made by the lenders . ( b) If lenders obtain ICE from more than the required number of CRAs, all such ICE opinions shall be RP4 or better for the RP t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assets stand withdrawn with immediate effect. Irrespective of the stage arrived at in the restructuring schemes and the accounts where any of the schemes have been invoked but not yet implemented, is governed by the revised framework. It accordingly provides that the Joint Lenders Forum as an institutional mechanism for resolution of stressed accounts also stands discontinued. All accounts under the circular, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework. 6. The Electricity Act, 2003 (for short Electricity Act ) was brought in force on 10.06.2003, inter-alia, to attract/promote the entry of the corporate sector in the field of power generation. It lays down the regulatory framework for the electricity sector, including tariff, procurement, supply, payment etc. Pursuant to Section 3 of the Electricity Act, respondent no.1 Union of India, notified the National Electricity Policy dated 12.02.2005 which highlighted the delicensing of generation as well as the need to increase participation of the private sector in order to alleviate the issue of scarcity of capital. On 06.01.2006, the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The Committee note that delicensing of power generation has been done to attract the entry of private sector into the power generation. This was done as the country was facing huge deficit in energy and peak power . The capacity addition targets required substantial capital addition per year with limited capacity addition expected from the public sector units (both Central and States). Private participation became essential for achieving the fast growth of power generation keeping pace with the demand of the country. During the 11th Plan period, private generating companies contributed in electricity generation in a substantial manner by outdoing both Central and State sectors put together . In the capacity addition targets of the Government Private sector have also contributed during the 12th Plan period as well. Their contribution to the sector has led the country to a power surplus situation from the power deficient one. Hence it is incumbent upon the Government to ensure the proper facilitation of capacity generation stuck due to several factors and forcing them to become NPA. The Committee, therefore, recommend that an appropriate task force be formed/constituted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision Act, 2015) was notified on 30th March, 2015. Under the provisions of the said Act, 84 coal mines have so far been successfully allocated. Of these coal mines, 58 coal mines have been allocated to power sector while rest have gone to other areas . The Committee has also been informed that with a view to ensure that there is no disruption in the power generation arrangements for coal block allottees, it was decided that coal may be supplied to such plants through a separate MoU route till 31.03.2016 as many of the plants were already commissioned or to be commissioned in 2015-16 and had long-term PPAs. The position was reviewed on expiry of the term, i.e., 31.03.2016 and it was decided that these plants may take the coal being made available through the process of special forward e-auction of coal for power sector. In order to ensure that there is no disruption in coal availability to these plants, the term of MoU with these plants which expired on 31.03.2016, was extended till 30.06.2016 so as to facilitate smooth transaction to the special forward e-auction system of CIL. The Committee note that despite serious attempts made by the Government to make available coal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulatory Issues 10. The Committee note that Ministry of Power has made attempts to facilitate the resolution of issues concerning stress in power sector. Several meeting have taken place from July, 2015 onwards with lenders and others but nothing concrete has come out so far. The Committee feel that in addition to financial matters, stress in the sector is also caused by various operational/commercial/regulatory issues. Regulatory matters keep on pending for years without any decision. Even the decisions of the regulatory bodies regarding change in law are not honoured by Discoms and various regulators interpret change in law differently leading to the confusion in the sector . Any situation arising out of the change in law should be uniform all across and if possible be kept out of the purview of the regulators. The Committee are aware that this is a Concurrent Subject and generation is a delicensed activity, but within these limitations some uniform mechanism will have to be explored and established to make the sector stable. The Committee, therefore, recommend that appropriate steps should be taken to ensure that there should be consistency and uniformity with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before this Court on 31.05.2018, when the following order was passed: Heard Mr. Sajan Poovayya, Senior Advocate with Mr. Ashish Mishra, learned counsel for the petitioners and Mr. Sanjay Kumar Om, learned counsel for respondents 1 and 3 to 6. Issue notice to respondent no.2, returnable on 10.7.2018. In addition to Court notice, the petitioners to serve notice to respondent no.2 by registered post with AD/Speed Post/Courier and to file proof of service. As requested by counsel for the respondent nos. 1 and 3 to 7, the question of maintainability of the writ petition, is kept open to be argued on the next date. It is open to the respondents to file short reply - affidavit at this stage, if they so desire and are advised. After hearing both the sides, counsel for the parties have agreed for the order that we propose to pass today. Hence the following order: We request the Secretary, Ministry of Finance, Union of India, to hold a meeting in the month of June, 2018 of respondents 2 to 5 through their Secretaries and a representative of the petitioners' association to consider their grievance and see whether any solution to the problem is possible, in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Committee, which read thus: The Ministry inter-alia made the following points during the meeting held on 21.06.2018: The electricity Act has provided a conducive environment to promote private sector participation and competition in the sector. Coal based capacity dominates among all sources of generation and its share in the country is 58.89%. The sector wise regional grids have been integrated into a single national grid thereby providing power from one corner of the country to another, through inter regional AC and HVDC links. During the last decade power generation growth (CAGR) was 6.1% from 2004-14 and 6.8% from 2014-17. However lower growth in power demand has led to declining trend in PLF at an all India level. Major reasons for stress ▪ Coal supply issues-owing to cancellation of 204 coal mines by Hon'ble Supreme Court in 2014 . ▪ Demand related issues Lower than anticipated growth in power demand and surplus supplies has caused under utiliztion ▪ Delayed Payments by Discoms Delay in realization of receivables from discoms impairs ability of developers to service debt in a timely fashion ▪ Inability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Power; Secretary, Ministry of Coal; CMD, State Bank of India; CMD, Power Finance Corporation; CMD, Rural Electrification Corporation; CMD, Punjab National Bank and CMD, ICICI Bank. The Terms of Reference made to the Committee, read thus: a. To assess the nature of stressed assets with a view to resolving the crisis and maximizing the efficiency of investment . b. Changes required to be made in the fuel linkage/allocation policy/other modes to facilitate supply of fuel to the stressed power plants . c. To facilitate sale of power by these stressed power plants . d. Suggest changes required in regulatory framework/administrative measures to facilitate faster disposal of tariff petitions/disputes and ensure interim payments during the pendency of the disputes before APTEL and other courts. e. Ensure timely payments by the DISCOMS, suggest payment security mechanism for IPPs . f. Changes required in the provisioning norms/Insolvency and Bankruptcy Code (IBC) to facilitate restructuring of the stressed assets including the changes required in Asset Restructuring Company (ARC) Regulations . g. Any other measures proposed for revival of stressed assets s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsists of recommendations of the Committee. 14.1 From the 40th report, it is clear that the Committee was apprised about the circular which discontinued all previous schemes for resolution of stressed assets and substituted the same with a generic framework for resolution. It also took note of the fact that the circular stipulates that default of even a single day in payment of interest/principal would trigger formulation of resolution plan. The framework, it also noticed, provided a deadline of 180 days for implementation of a resolution plan and if it is not implemented, then lenders have to file insolvency application under the IBC within 15 days. The Committee made a specific query as to whether the new guidelines on NPAs will spur the filing of insolvency proceedings with the National Company Law Tribunal (for short 'NCLT'). The Ministry of Finance informed that as per the RBI's new guidelines (circular), a stressed account of above ₹ 2,000 crore has to be referred to NCLT under IBC if the default continues beyond 180 days. 14.2 It is worth mentioning, at this stage, the difficulties faced by lenders with respect to the strict timeline of 180 days, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sectoral challenges cannot be addressed through IBC and thus the resolution may not be forthcoming as the power assets have challenges extraneous to the capital structure like : shortage/non availability coal, delayed power procurement by Discoms, regulatory issues, long working capital cycle with Discoms and level playing field not offered. 14.6 Elaborating about the need for a separate framework for resolution of stressed assets in electricity sector, Independent Power Producers deposed as under: RBI circular has not taken cognizance of the (ground realities of the Electricity Sector) and it is heavily framed in such a way that steel and all other industries have been put together and it tried to address every sector together. But electricity is a very highly regulated sector. So, comparing this sector with other sectors and putting the same framework may not work. So, what we feel is that there should be a separate framework as far as the power sector is concerned . (emphasis supplied) 14.7 Regarding Sub-Optimal Bid Outcome, the Independent Power Producers also stated that: Abhijit Group had a power plant in Jharkhand . It was bid out. It got ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much lesser fault of theirs . This demand can come from all those sectors. So, should we have a separate sector-specific NPA resolution regime or an overarching regime? (emphasis supplied) 15. It is not in dispute that the power sector is completely regulated by government instrumentalities. The quantum, price and quality of coal is controlled by CIL, evacuation of coal from mines pithead to plant is by Indian Railways, transmission of power generated is by Power Grid Corporation, take-off and payment of power by Discoms (State Government owned utilities). The power generating companies have no control on various elements and, therefore, as submitted by the petitioners, they are facing an undeserved extinction and erosion of capital due to expropriatory/uneconomic tariffs, arbitrary actions, delays and a mechanical application of the impugned RBI circular. It was further submitted that other sectors such as Sugar, Cement, Shipping, Steel, Textile, etc are not completely regulated by the government instrumentalities though, in some cases, these sectors also depend on supply of fuel like coal. That was the reason, according to the petitioners, why case of the power sector w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin a period of 2 months, hence, at least till then, the circular deserves to be stayed or be not implemented. He submitted that it is quite possible that on the basis of the report, the Central Government may, in exercise of its powers under Section 7(1) of the RBI Act, issue appropriate directions after consultation with the Governor of RBI to the banks in public interest. He, therefore, submitted that till the High Level Empowered Committee submits its report, the circular may be stayed insofar as power sector is concerned. 16.2 Mr. Poovayya, learned Senior Counsel, after inviting our attention to the impugned circular, submitted that in terms of paragraph 9 of the circular, if a resolution plan is not implemented within 180 days (i.e. 27.8.2018), with the consent of 100% lenders/creditors, it is mandatory for the lenders to refer the matter under IBC. In terms of paragraph 6 of the circular, he submitted, it mandates that the resolution plans involving restructuring as well as change in ownership pursuant to a resolution plan, in respect of 'large accounts' will require independent credit evaluation by credit rating agencies specifically authorized by RBI. He subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to fuel supply, PPAs and timely payment of dues is addressed. He submitted that RBI ought to have adopted an individualized approach to the resolution of stressed assets taking into consideration the facts of each case. RBI could have issued different sector-wise circulars in exercise of its powers under Section 35-AA of BR Act and issuance of circular under Section 35-AB, treating all sectors equal, was wrong and illegal. After inviting our attention to the provisions contained in Section 35-AA and 35-AB, he submitted that the circular is contrary to these provisions. 16.4 Mr. Navin Sinha, learned Senior Counsel adopted the submissions made by Mr. Singhvi and Mr. Poovayya, learned Senior Counsel for the petitioners. 16.5 Mr. Kadam, learned Senior Counsel for RBI invited our attention to some relevant facts and figures to contend that the banking sector of India is facing a huge crisis. He pointed out that the gross NPA as on 31.03.2017 was 7,28,768 crores which is equivalent to approximately 5 percent of India's GDP. As on 31.03.2018, the gross NPA was 9,62,621 crores and on 30.09.2018, the gross NPA would be 7,90,649 crores. Out of these NPAs, 87.50 percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich qualify under Section 30(2) of IBC, are bound to be placed before the Committee of Creditors (for short CoC ). Section 30 (4), he submitted, contains the most important provision of IBC. It leaves it to the commercial wisdom of the CoC to determine which resolution plan is to be passed. Under Section 31, the resolution plan approved by CoC is required to be placed before NCLT and on its approval, the resolution plan comes into effect. 16.8 Despite the provisions referred to by him, it was submitted that the crisis in the banking sector continued and, hence, on 04.05.2017, the Government initially issued an Ordinance amending the BR Act and inserted Sections 35AA and Section 35AB of the Amending Act, 2017. He then submitted that by an order dated 05.05.2017, the Government authorised the RBI to issue directions to any banking companies to initiate insolvency resolution process in respect of a default under IBC. Accordingly, he invited our attention to the directions issued by RBI on 13.06.2017 which, he submitted, directed to take action against all accounts whose indebtedness to banks exceeded ₹ 5,000 crores; were NPA for more than one year; and whose NPA exceeded 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the constitutional institutions that Articles 105, 121 and 122 of the Constitution conceive . While dealing with these questions, the Supreme Court in paragraphs 79 and 80, observed thus: 79. A close look at the functioning of these committees discloses the fact that the committee system is designed to enlighten Members of Parliament (MPs) on the whole range of governmental action including defence, external affairs, industry and commerce, agriculture, health and finance. They offer opportunities to the members of the Parliament to realize and comprehend the dynamics of democracy. The members of Parliament receive information about parliamentary workings as well as perspective on India's strengths and weaknesses through the detailed studies undertaken by standing committees. Indian parliamentary committees are a huge basin of information which are made available to the Members of Parliament in order to educate themselves and contribute ideas to strengthen the parliamentary system and improve governance. The committee system is designed to enhance the capabilities of Members of Parliament to shoulder greater responsibilities and broaden their horizons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpreting the meaning of the statutory provision where it is ambiguous and unclear or, for that matter, to appreciate the background of the enacted law is quite different from referring to it for the purpose of arriving at a factual finding. That may invite a contest, a challenge, a dispute and, if a contest arises, the Court, in such circumstances, will be called upon to rule on the same . The Supreme Court proceeded to make the following observations in paragraph 132, to which our attention was specifically invited by learned Senior Counsel for the RBI, which reads thus: 132. In the case at hand, the controversy does not end there inasmuch as the petitioners have placed reliance upon the contents of the parliamentary standing committee report and the respondents submit that they are forced to controvert the same. Be it clearly stated, the petitioners intend to rely on the contents of the report and invite a contest. In such a situation, the Court would be duty bound to afford the respondents an opportunity of being heard in consonance with the principles of natural justice. This, in turn, would give rise to a very peculiar situation as the respondents would invariably be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or challenged in a court of law. (iv) Where the fact is contentious, the petitioner can always collect the facts from many a source and produce such facts by way of affidavits, and the Court can render its verdict by way of independent adjudication. (v) The Parliamentary Standing Committee report being in the public domain can invite fair comments and criticism from the citizens as in such a situation , the citizens do not really comment upon any member of the Parliament to invite the hazard of violation of parliamentary privilege. (emphasis supplied) 17.5 In the concurring judgment written by Dr. D.Y. Chandrachud, J, in paragraphs 124 and 125 observed thus: 124. Committees of Parliament attached to ministries/departments of the government perform the function of holding government accountable to implement its policies and its duties under legislation. The performance of governmental agencies may form the subject matter of such a report. In other cases, the deficiencies of the legislative framework in remedying social wrongs may be the subject of an evaluation by a parliamentary committee. The work of a parliamentary committee may traverse the area of soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here may, however, be contentious matters in the report of a parliamentary committee in regard to which the court will read with circumspection. For instance, the report of the committee may contain a finding of misdemeanor involving either officials of the government or private individuals bearing on a violation of law. If the issue before the court for adjudication is whether there has in fact been a breach of duty or a violation of law by a public official or a private interest, the court would have to deal with it independently and arrive at its own conclusions based on the material before it. Obviously in such a case the finding by a Parliamentary Committee cannot constitute substantive evidence before the court. The parliamentary committee is not called upon to decide a lis or dispute involving contesting parties and when an occasion to do so arises before the court, it has to make its determination based on the material which is admissible before it. An individual whose conduct has been commented upon in the report of a parliamentary committee cannot be held guilty of a violation on the basis of that finding. In Jyoti Harshad Mehta v The Custodian 14 CWN 945 , this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading to cost overrun, and aggressive bidding by developers in PPA. Further, the quantum, price and quality of coal is controlled by CIL; evacuation of coal from mines pithead to plant is by Indian Railways; transmission of power generated is by Power Grid Corporation; take-off and payment of power by Discoms (State Government owned utilities) and that is how it is completely regulated by government instrumentalities. Similarly, categorization of the different categories of stressed power plants, such as plants having PPA and requiring coal, plants having coal block but the issue of coal block is subjudice, plants having neither coal linkage nor PPA, and the plants stressed on account of reasons other than coal linkage/block issues, is also not in dispute. 19. Thus, it is clear, the Court can take judicial notice of the Parliamentary Standing Committee report under Section 57(4) of the Evidence Act and it is admissible under Section 74 of the said Act. The Court can take such a report on record or note of as existence of a historical fact. Such report can also be taken aid of for the purpose of interpretation of a statutory provision wherever it is so necessary. The wide j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is pertinent to note that on the basis of the report made by the Committee constituted by this Court, the Government of India, Ministry of Power, with the approval of the Prime Minister, has constituted a High Level Empowered Committee to address the issue of stressed thermal power projects in the country, headed by the highest bureaucrat, namely the Cabinet Secretary. The order recommending constitution of the Committee also formulated the Terms of Reference which cover all aspects/issues covering power sector, including to consider whether changes required in the provisioning norms/IBC to facilitate restructuring of the stressed assets and the changes required in ARC regulations. Thus, the object of the reference is also relatable to the powers of RBI to issue direction/guidelines under Section 35AA or 35AB of BR Act. This clearly indicates that efforts are being made at the highest level to resolve the sectoral (power) issues. Such efforts, admittedly, are not made in respect of any other sector insofar as the impugned circular is concerned. 22. I would now like to have a look at the provisions of the Banking Regulation (Amending) Act, 2017 (for short the Amending Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levels and hence, urgent measures are required for their speedy resolution to improve the financial health of banking companies for proper economic growth of the country. Therefore, it was considered necessary to make provisions in the BR Act, authorising the RBI to issue directions to any banking company or banking companies to effectively use the provisions of the Insolvency and Bankruptcy Code, 2016 for timely resolution of stressed assets. Thus, it is clear that urgent measures are required for their speedy resolution to improve the financial health of banking companies for proper economic growth of the country, and for that purpose the provisions of IBC can be effectively used for resolution of stressed assets by empowering the banking regulator to issue direction in specific cases. Indisputably, the object in introducing IBC is laudable and in the present scenario it needs to be implemented scrupulously in improving the economic growth of the country. 22.3 Section 35A was inserted in the BR Act, with effect from 14.01.1957. This provision also empowers the RBI to give directions where it is satisfied in the public interest or in the interest of banking policy or to prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng companies for resolution of stressed assets . The expression stressed assets has not been used or defined in IBC, in particular Part II of Chapter II thereof. This provision opens with the expression 'without prejudice to the provisions of Section 35A of BR Act' which is general in nature and under which the RBI is obliged to give directions to banking companies as stipulated therein. The expression without prejudice to the provisions of Section 35A as one finds in Section 35AB would only indicate that the general power conferred on the RBI under this provision is in addition to the powers of RBI to issue directions under Section 35A of the BR Act. 22.5 Mr. Poovayya, learned Senior Counsel for the petitioners, in view of the language employed in these two provisions, vehemently submitted that under Section 35AB, the RBI has no powers to issue directions to the banking company or banking companies for resolution of stressed assets under the provisions of IBC. If that was the intention of the legislature, he submitted, the provisions of Section 35AB would have made it so clear, as in Section 35AA. As against this, Mr. Dwivedi, learned Senior Counsel appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies on resolution of stressed assets; and ( c) to amend section 51 of the Act so as to make therein the reference of proposed new sections 35AA and 35AB. 4. The Bill seeks to replace the said Ordinance. (emphasis supplied) 22.7 The Amending Act, 2017, which seeks to replace the Ordinance, thus, confers power upon the Central Government for authorising 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 IBC, and to confer power upon the RBI to issue directions to banking companies for resolution of stressed assets and to allow the RBI to specify one or more authorities or committees to advise banking companies on resolution of stressed assets. Thus, prima facie, it appears that even SOR makes a similar distinction as noticed by us between Section 35AA and 35AB. In view of the language of the SOR read with the provisions contained in Sections 35AA and 35AB in particular the difference in the language used in these two provisions, it appears that under Section 35AB it may not be open to the RBI to issue directions to any banking company or banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve issued directions, in consultation with the Governor of RBI insofar as power sector is concerned, in the light of the reports of the Standing Committee. It is not in dispute that the reports of Standing Committee are, so far, not accepted by the Parliament and in view thereof, it may not be possible for the Central Government to issue directions as contemplated by Section 7 of the RBI Act. But, that would not preclude the Central Government to initiate consultative process for giving appropriate directions under Section 7(1), if they so desire, at any stage even before the High Level Empowered Committee submits its report. 23. Next, let me have a close look at few relevant provisions of IBC not only to understand the object in introducing the same but also to appreciate the submissions advanced by learned counsel for the parties in the light thereof. Chapter II of Part II of the IBC deals with corporate insolvency resolution process. The provisions therein provide for a complete mechanism right from the stage of initiation of corporate insolvency resolution process till approval of a resolution plan. A financial creditor, as defined by Section 5(7) of the IBC, can initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) thereof states that the interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. Section 21 speaks about Committee of Creditors. Section 22 provides for appointment of resolution professional in the place of the interim resolution profession by the creditors. Section 23 provides for the resolution professional to conduct the corporate insolvency resolution process. Section 25 deals with the duties of the resolution profession. Section 30 provides for submission of resolution plan. Section 31 provides for approval of a resolution plan and Section 32 provides for an appeal from an order approving the resolution plan on the grounds laid down in sub-section (3) of Section 61 of the IBC. 23.2 Chapter III of Part II deals with liquidation process. It starts with initiation of liquidation under Section 33 of the IBC and ends with dissolution of a corporate debtor under Section 54 thereof. Section 53 in this Chapter provides for distribution of assets. 23.3 From the scheme of the provisions contained in these two Chapters, it ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct whether any resolution plan is being worked out. Clause 18 of the circular, specifically provides that the extant instructions on resolution of stressed assets stand withdrawn with immediate effect. The circular makes it mandatory to the lenders to initiate insolvency process under IBC even if, in a given case and for some valid reasons, they do not wish to do so. 24.1 Thus, the circular provides that if the process of resolution of insolvency resolution is not completed within 180 days, commencing from 1 March 2018, with 100 percent consensus amongst creditors, the creditors have no option but to initiate insolvency resolution process immediately, and in which case, as contemplated by clause 18 of the circular, all resolution processes would stand withdrawn. It was argued on behalf of petitioners- Associations that in case of their Members, insolvency resolution processes have been initiated and are in progress and those would not be concluded within 180 days i.e. before 27.08.2018 and they would require further time. As observed earlier, the Central Government is in favour of granting them some more time so as to save the power sector in the larger interest. Mr. Tushar Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved earlier, the major reasons for stress in most of the thermal power projects have been attributed to non-availability of fuel, cancellation of coal blocks, projects set up without linkage, lack of enough PPA, inability of the promoter to infuse the equity and working capital, contractual/tariff related disputes, issues related to banks/financial institutions, delay in project implementation leading to cost overruns and aggressive bidding by developers in PPA. The RBI could not dispute that the reasons for stress in most of the thermal power projects are a reality and they are completely regulated by the Government/Government instrumentalities and that these power projects do not have any independence in respect thereof. The RBI, however, contended that there are other sectors such as sugar, which are also regulated by Government instrumentalities. 28. I am, prima facie, of the view that there should be unanimity amongst the different arms of the Government on such crucial issues like timeline for resolution and they should be flexible enough to address the problems in the proper perspective and resolve it in a positive manner. Whether RBI, apart from financial issues ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total gross advances. The figure of NPA's has increased substantially as on March 2018, where the total gross advances was ₹ 4,64,969 crores and the total gross NPAs was ₹ 1,04,337 crores, being 22.4% of the total gross advances. A copy of the tabular chart setting out the details of the increase in the gross advances and NPAs in the economy in respect of the electricity generation companies for the period commencing from March 2015 to March 2018 is annexed hereto and marked as Annexure- 2 . 4.That it is submitted that the aforesaid increase in the gross advances and NPAs (including that of the electricity generation companies) in the banking sector, has drastically affected the profitability of the banks. As on March 2010, the profit (after tax) of banks was ₹ 52,638 crores which has significantly reduced to a loss of ₹ 24,820 crores as on March 2018. A copy of the tabular chart setting out the details of the decline in the profitability of all banks and decline of credit growth of the public sector banks for the period commencing from March, 2010 to March, 2018 is annexed hereto and marked as Annexure - 3 . 29.2 From the contents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier, provides a timeline (180 days) for completion of insolvency resolution process. Under this provision, at a meeting of the committee of creditors by a vote of 66 percent of the voting shares, the time can further be extended by 90 days. Section 27 provides the procedure for replacement of a resolution professional by the committee of creditors. Sub-section (2) thereof provides that the committee of creditors may, at a meeting, by a vote of 66 percent of voting shares, resolve to replace the resolution professional appointed under Section 22 with another resolution profession. Even for appointment under Section 22, the committee of creditors may, in the first meeting, by a majority vote of not less than 66 percent of the voting share of financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution profession by another resolution professional. Sub-section (8) of Section 21 also provides that all decisions of the committee of creditors shall be taken by a vote of not less than 66 percent of voting share of the financial creditors. Section 28, which deals with approval of committee of credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circular was issued no steps against the stressed assets have been taken. In this backdrop, paragraph 6 of the circular needs to be seen carefully. It provides for implementation condition for a Resolution Plan. Such Resolution Plans involving restructuring/change in ownership in respect of large accounts shall require independent credit evaluation (ICE) of the residual debt by credit rating agencies (CRAs) specifically authorised by the RBI for this purpose. Though the circular was issued on 12.02.2018, the RBI issued a notification authorising CRAs on 21 May 2018, i.e. almost after 100 days from the date of the circular. It was specifically argued by Mr. Poovayya that for the lack of CRA notification, insolvency resolution process could not even begin and all debtors lost 100 days time out of 180 days. No satisfactory explanation is forthcoming though it was submitted on behalf of RBI that issuance of such a notification is a formality and merely because the notification had not been issued for 100 days, would not affect implementation of RPs. The fact, however, remains that for no good and acceptable reason there was 100 days delay in issuance of CRA notification. 30. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the country during last few years, the RBI should and can exercise powers under Section 35AA and 35AB. The powers of the RBI cannot be either curtailed or interfered with in any manner. The matters of economic policy should be best left to the wisdom of the legislature and in policy matters the accepted principle is that the courts should not interfere. Moreover, in the context of the changed economic scenario, the expertise of people dealing with the subject should not be lightly interfered with. The consequences of such interdiction can have large-scale ramification and can put the clock back for a number of years and the process of rationalisation of the infirmities in the economy can be put in serious jeopardy and, therefore, it is necessary that while dealing with economic legislation, this Court, should interfere only in those cases where the view reflected in the legislation is not possible to be taken at all. ( See Bhavesh D. Parish Ors. Vs. Union of India Anr., (2000) 5 SCC 471) . Once insolvency resolution process begins, it cannot be arrested by courts. The question whether the courts can exercise its powers under Article 226 of the Constitution to extend the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified as NPA on CRILC, would be given time till 13 December 2017 for resolution under IBC. It is, thus, clear that there is a difference between action under the earlier circulars and the impugned circular. In this backdrop, it was submitted that RBI before issuing the impugned circular did not constitute IAC, which, if had they done so, could have advised to take sectoral issues into consideration, in particular the power sector before issuing the circular. No satisfactory explanation is forthcoming from RBI as to why IAC was not constituted before the impugned circular was issued. 33. Mr. Poovayya, learned Senior Counsel appearing for the petitioner Associations, after drawing our attention to the 37th and 40th reports of the Standing Committee, as also the decision of the Ministry of Power to constitute a High Level Empowered Committee, approved by the Prime Minister, vehemently submitted that there is every possibility that the Central Government, on the basis of the reports of the Standing Committee and a report of the High Level Empowered Committee may issue appropriate directions, after consultation with the Governor of the RBI, under Section 7 of the RBI Act. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MWs are under severe financial stress and are currently under SMA-1/2 stage or are becoming/have become NPAs. It appears from the report of the Standing Committee that 34 Power Plants have been categorized as 'stressed'. The different categories of stressed power plants are (i) plants having PPA and requiring coal; (ii) plants having neither coal linkage nor PPA; (iii) plants having coal block but the issue of coal block is sub-judice; and (iv) the plants stressed on account of reasons other than coal linkage/block issues. It has also come on record that upon cancellation of 204 coal blocks by the Supreme Court in September 2014, coal mines were notified in March, 2015 under the Special Provisions Act, 2015. Thus attempts are being made to make available coal to the power sector, but the desired results are not yet achieved and the power sector is starving for fuel. 36. It is not in dispute that the major reasons for stress in most of the Thermal Power Projects have been attributed to (i) non-availability of fuel (a) cancellation of coal blocks, (b) projects set up without linkage; (ii) lack of enough PPA by States; (iii) inability of the promoter to infuse the equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts power to issue a circular in exercise of powers under Sections 35AA and 35AB of Amending Act, 2017, and while giving any directions is expected to take into account sectoral issues, may be on the advise of Internal Advisory Committee (IAC) requires to be addressed at the stage of final hearing of the petitions. At the same time, the reality of electricity sector cannot be completely overlooked as is noticed by the Standing Committees. A High Level Empowered Committee has been constituted to address the whole range of vital issues of the electricity sector, keeping in view the financial issues also. The RBI's circular, undoubtedly, address only financial issues. The Government, on the other hand, seems to be concerned for revival of 'stressed' power plants and, in view thereof, in the light of factual data reflected in the reports of Standing Committees, the Central Government, should step in and decide whether it would like to exercise its powers under Section 7 of the RBI Act in the larger interest of the power sector and to see that the vision of power to all 24 x 7 is achieved. 39. In my opinion, the RBI will have to address the following questions at the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI, as a member of the High Level Empowered Committee forthwith. In the meantime, I observe that the Central Government should consider whether it would like to issue directions under Section 7 of the RBI Act on the basis of the report and other material, including reports of the Standing Committee within 15 days from today in the light of the observations made in this order. In view thereof, it is not desirable to grant any interim relief at this stage. This shall not preclude the petitioner-Associations or its members from applying for urgent relief, if the circumstances so demand, placing the request and factual details in respect of such an action. This order shall not curtail the rights/powers of the financial creditors under Section 7 of IBC or even of the RBI in issuing directions in specific case(s) under Section 35AA of BR Act to initiate corporate insolvency resolution process under Chapter II of Part II of IBC, in any given case, including the petitioners or members of the petitioners' Association. ( Per Yashwant Varma, J.) A. INTRODUCTION 43. While we are agreed that the petitioners are not entitled to any interim relief, I propose to assign an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the Court on 31 May 2018 in Writ Petition No. 18170 of 2018 as well as the observations and recommendations contained in the 37th and 40th Reports of the Standing Committee on Energy presented to the Lok Sabha. It is also submitted that all coercive action be stayed till such time as the High Level Empowered Committee formed by the Union Government takes a decision in the matter. 45. Writ Petition No. 23183 of 2018 has been instituted by the petitioner, Prayagraj Power Generation, which has established a Thermal Power Project at Bara, District Allahabad. Writ Petition No. 18170 of 2018 has been instituted by the Independent Power Producers Association of India IPPA which is described to be a non-profit independent association constituted to study and frame recommendations with respect to issues critical to the development of the power sector in India. Of its 20 members, according to the list as appended at Page 127A of the paper book, members at Serial Nos. 4 and 7 are stated to have interests present in the State of U.P. Writ Petition No. 23181 of 2018 has been presented by the Association of Power Producers APP and is joined by G.M.R., Chhattisgarh Energy L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government to authorise the RBI to issue directions to any banking company/companies to initiate an insolvency resolution process in respect of a default under the provisions of the Insolvency and Bankruptcy Code, 2016 IBC . Section 35AB confers powers on the RBI to issue directions to banking companies in general for resolution of stressed assets. Pursuant to the introduction of these two provisions in the 1949 Act, the Union Government by an order dated 5 May 2017 specifically authorised RBI to issue directions as contemplated under Section 35AA. Before proceeding further it would be pertinent to extract the Preamble of the Ordinance which reads thus: - WHEREAS the stressed assets in the banking system have reached unacceptably high levels and urgent measures are required for their resolution; AND WHEREAS the Insolvency and Bankruptcy Code, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms ad individuals in a time bound manner for maximisation of value of assets to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders; AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted its 37th Report to the Lok Sabha on 7 March 2018. This report while dealing with myriad issues affecting the power sector of the country, also considered the position of stressed/non performing assets in the sector. The Standing Committee essentially dwelt upon the peculiar problems faced by the sector in the country and framed various recommendations for the consideration of Parliament. The Standing Committee essentially formed the opinion that there was an inherent need to balance the interests of the nascent private power sector as against the modes of recovery as formulated by the RBI and opined that the N.P.A. and stressed assets Guidelines as framed by the RBI would not merit a mechanical application since the same would push the power sector into further jeopardy and diminish all hopes of recovery. Undisputedly, no concrete measures have either been formulated or passed by Parliament on the basis of the 37th Report till date. 50. On 13 June 2017, RBI issued a directive dealing with the subject of the necessity of Financial Institutions [FI s] identifying stressed assets and the imperative need to initiate processes for resolution thereof under the IBC. It according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s account, all lenders, singly or jointly, shall initiate steps to cure the same. It essentially emphasises the requirement of exploring and evaluating a R.P. immediately upon default having occurred. The challenge in the instant batch of writ petitions has turned primarily around the provisions of Paragraphs 5, 8, 9 and 18 and consequently the same are being extracted herein below: - C. Implementation Conditions for RP 5. A RP in respect of borrower entities to whom the lenders continue to have credit exposure, shall be deemed to be 'implemented' only if the following conditions are met: a. the borrower entity is no longer in default with any of the lenders; b. if the resolution involves restructuring; then i. all related documentation, including execution of necessary agreements between lenders and borrower/ creation of security charge/perfection of securities are completed by all lenders; and ii. the new capital structure and/or changes in the terms of conditions of the existing loans get duly reflected in the books of all the lenders and the borrower. D. Timelines for Large Accounts to be referred under IBC 8. In respect of accounts with aggrega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the directions issued by the Court a meeting was in fact held and the report dated 17 July 2018 has been placed and made a part of these proceedings. The said Committee firstly recommended the setting up a High Level Empowered Committee HLEC to deal with the sectoral concerns raised by various stakeholders in a time bound manner. It also recommended that an additional 180 days beyond the timeline prescribed under the impugned directions may be allowed to commissioned Thermal Power Projects to enable the HLEC to address and look into the sectoral constraints faced by the power sector. RBI which was also invited to participate in the deliberations submitted its comments which stand appended to the report of the Committee. It basically took the position that the ground reality of the high level of stressed assets cannot be ignored and that there was an emergent need for early and expeditious resolution. It further opined that the 180-day window for resolution which operates outside the IBC gives a powerful incentive to the lenders to undertake expeditious restructuring. RBI further noted that in its experience it had found that although the 34 identified stressed assets had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph 18 essentially repeals all existing instructions and schemes formulated by the RBI for resolution of stressed assets. It not only discontinues all institutional mechanisms for resolution, it also provides that all accounts where any of the prior existing schemes have been invoked but not yet implemented, shall be governed by the revised framework as embodied in the impugned directive. It is these provisions of the Directions which are assailed by the petitioners. 57. In order to complete the narration of facts, I also note that pursuant to the recommendations framed by the Committee which came to be convened pursuant to the interim directions issued by this Court, the Union Government has constituted the HLEC in terms of the Office Memorandum dated 29 July 2018 issued by the Ministry of Power. The HLEC chaired by the Cabinet Secretary comprises of 10 other members from different ministries, banking institutions as also the Power Finance Corporation and the Rural Electrification Corporation. RBI is conspicuously absent from the HLEC. During the pendency of these writ petitions, the Standing Committee On Energy has also submitted its 40th Report to the Lok Sabha on 7 Augu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that banks had already decided to invoke the provisions of the IBC. The second aspect arising from the objection with regard to maintainability as formulated by Sri Dwivedi was with respect to the existence of only three plants of members of the petitioners being situate in U.P. while their corporate offices being outside the State. In the submission of Sri Dwivedi the absence of corporate head offices within the State of U.P. clearly pointed to a lack of territorial jurisdiction vesting in this Court to entertain the writ petition since the issue of financing contracts was directly connected with the corporate or registered offices of companies and not their plants. 62. The two Full Bench decisions of this Court in Umesh Chand Vinod Kumar and Aloo Phul Sabzi, which clearly bind this Court have in unequivocal terms recognised the right of an association to maintain a writ petition where the relief is claimed for the benefit of all its members collectively and is not really designed to canvass the interest of a particular member or seek relief in respect thereof. In the present case both IPPA and APP assert that the impugned directive shall adversely impact not a partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars have not been disclosed. However during the course of oral submissions although it was not disputed that some plants did exist, it was contended that the majority of the members of IPPA and APP were situate outside the State. According to Sri Dwivedi only a few individual members of the two associations had manufacturing facilities with the State of U.P. and therefore the Court should throw out the petitions of IPPA and APP on this score alone. 65. While dealing with the issue of maintainability, this Court cannot rest its decision on the numerical strength of members of an association. It has to primarily consider whether cause of action, wholly or in part, has arisen within its territorial jurisdiction. Even if a singular plant is found to exist within the State of U.P. and is likely to be impacted by the impugned action, the same would constitute a material fact for adjudging the question of maintainability. While during the course of oral submissions Sri Dwivedi did address some additional facets of this objection relating to the number of members whose plans already stood rejected, those whose cases already stood referred under IBC, no such foundation or disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations framed by the Committee constituted pursuant to the interim directions passed by this Court and the reports of the Standing Committees referred to above as well as the stand of the Union Government itself on the matter to buttress their prayer for the extension of the 180 day period. It was submitted that these reports constituted material evidence that could be relied upon by the Court. It was contended that in light of the recommendations contained in these reports, the petitioners were entitled to the grant of interim relief and all coercive action stayed till the matter is resolved by the HLEC. 67. The prayer for the extension of the 180-day period was also addressed in light of the provisions of section 12(4) of the IBC, which confers discretion on the Resolution Professional to seek extension of this period by a further 90 days. The petitioners contend that the moment proceedings under the IBC are initiated, certain irreversible and irretrievable steps stand initiated causing grave and irreparable harm to the petitioners. Referring to the measures which stand triggered immediately upon a petition being admitted under Section 7 of the IBC, it was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI from the HLEC nor could he justify the evident absence of the impugned directive being subject matter of the Terms of Reference. However the learned ASG did state that the Union would have no issue in inviting RBI to participate in the deliberations and placing their views. It was his categorical submission that in the fitness of things, RBI should be included in the process of deliberations that may take place before the HLEC. F. SUBMISSIONS OF RBI 70. Shri Ravi Kadam, learned Senior Counsel, who advanced submissions on behalf of the RBI, submitted that the measures adopted by the RBI cannot be judged without appreciating the backdrop in which they came to be issued. Apprising us of the status of the banking sector of the country, he referred to the Gross NPA position of scheduled banks which, according to him, stood thus: Sr. No. Date Gross NPA 1. 31.03.2017 ₹ 7,28,768 crores(equivalent to approx. 5% of India's GDP) 2. 30.09.2018 Rs. 7,90,649 crores 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the RBI had proceeded to unroll a process for insolvency resolution in a phased manner. The submission, in essence, was that the steps formulated and unrolled were not a knee jerk reaction but a well considered plan framed by RBI to address the issue of resolution of stressed assets. The Directions, in the submission of Shri Kadamb, put in place a harmonised and simplified framework to tackle stressed assets. 74. Dealing with the contentions and the direction dated 12 February 2018 being not in conformity with the Article 14, Shri Kadamb submitted that RBI is primordially concerned with the management and affairs of banks, banking activity, borrowing, lending and recovery of loans. It was his submission that the huge outstanding debts of Banks was an issue which had and was likely to have a titanic impact on the economy of the country and the larger public interest. According to Shri Kadamb, the framing of sector specific directions by RBI would itself be discriminatory since public debt and issues arising therefrom must be addressed on a uniform plane. It was contended that since RBI was a banking regulator, it is bound to treat all defaulters equally and can classify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression of a material fact by this petitioner since it has failed to disclose that the S4A had been invoked in its case unsuccessfully and that its proposal for restructuring had been rejected by its lenders on 7 May 2018. In light of the above, it was submitted that the petition was clearly a dressed up attempt by the entrenched management to continue its control over the corporate debtor even though the promoters today hold only 10.53% of its equity. 77. The attention of the Court was also drawn to the provisions of Section 12 A of the IBC to submit that even if an application was admitted under Section 7, in the event of a RP being approved by the Committee of Creditors, it would always be open for the withdrawal of insolvency proceedings on the application of 90% of the creditors holding a voting share equivalent to the said percentage in the Committee of Creditors. 78. Resuming arguments on behalf of RBI, Sri Rakesh Dwivedi, learned Senior Counsel, on merits explaining the scheme of Sections 35AA and 35AB, submitted that Section 35AA empowers the RBI upon being authorised by the Union Government to take action in specific cases of default. Section 35 AB on the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s submissions were as follows. According to him the promulgation of IBC, the introduction of Sections 35AA and 35AB initially by way of the 2017 Ordinance, its replacement by the 2017 Amendment and the specific authorisation of the Union Government under section 35AA were themselves indicative of the principled decision of the Union Government to empower RBI to take emergent steps for the resolution of stressed assets. Sri Dwivedi referred to the amended Preamble of the 1934 Act to highlight the stated will of Parliament to clothe RBI with the requisite powers and authority to frame monetary policy in order to meet the challenges of an increasingly complex global economy as also to lay down a broad monetary policy framework to maintain price stability bearing in mind the objective of growth of the nation. Sri Dwivedi further laid stress upon the provisions of Section 7 of the 1934 Act to contend that this provision lays down a statutory mechanism for resolution of any differences of opinion between the Union Government and RBI. In the submission of Sri Dwivedi, Section 7 embodies and puts in place a forum for resolution of all questions and is in one sense the repository mechan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that stood altered consequent to the promulgation of the directive was that steps for restructuring initiated or adopted earlier would be governed by the revised framework. Elaborating his submissions in respect of the impugned directive Sri Dwivedi submitted that the discretion of banks to invoke IBC had neither been fettered not taken away. All that was sought to be introduced by the impugned directive, according to the learned senior counsel, was to highlight and underline the inherent need for banks and FI s to initiate a RP with expediency. Explaining the Footnote to Paragraph 8 Sri Dwivedi submitted that the same was neither intended nor liable to be read as a provision compelling banks and FIs to initiate a RP without waiting for the 180 day period. According to the learned Senior Counsel, the concerned Footnote was placed as a matter of abundant caution to leave the respective banks free to deal with cases of chronic debtors and defaulters whose cases may have already been found to be unviable. 85. Sri Dwivedi has then reiterated the submissions advanced by Sri Kadamb earlier relating to IBC to contend that action under the Code cannot be read as being prejudicial to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this petitioner was entitled to interim protection. 88. Drawing our attention to the last proposal submitted by Prayagraj, it was pointed out that the same also only envisaged the petitioner obtaining further loans from a new creditor in order to liquidate its outstanding dues partly. It was also brought to our attention that the proposed credit facility offered to the petitioner was itself subject to the condition that the new creditor would be granted an overriding charge over its assets, thus, diminishing the position of its existing lenders. It was then submitted that the proposed sale of shares would also not get short circuited in light of the express provisions of the IBC. Elaborating on this aspect, Shri Dwivedi referring to the provisions of Section 14 of the IBC, submitted that the moratorium which would come into operation upon a petition being admitted would clearly not apply since the security interest created by this petitioner had already been enforced and foreclosed. Shri Dwivedi submitted that upon the enforcement of the security interest, the management clearly stood divested of ownership and title over approximately 90% of its share capital. Our attention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions of the petitioners primarily rest on two pillars:- (a) The 37th and 40th reports of the Standing Committee and (b) The irreversible prejudice and loss that shall be caused in case proceedings are initiated under the IBC. G. THE STANDING COMMITTEE REPORTS 93. Insofar as reliance placed on the recommendations and findings contained in the report submitted by the Standing Committee are concerned, the petitioners seek to draw sustenance from the recent decision rendered by the Constitution Bench of the Supreme Court in Kalpana Mehta Vs. Union of India (2018) 7 SCC 1 . On the strength of this decision, it is submitted that the reports of the Standing Committees of Parliament can be taken note of by the Court and in light of the findings recorded therein this Court must invoke its extraordinary jurisdiction and issue interim directions which would be in tune with the recommendations embodied in those reports. This submission prima facie would not commend acceptance for the following reasons. 94. The Constitution Bench in Kalpna Mehta has lucidly explained the purposes for which the report of a Standing Committee may be relied upon. These have been iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset classification benefits to banks, revealed that their adoption rate among eligible borrowers was less than 20% and in case of SDR, the success rate was close to zero where implemented, indicating that the schemes were not really used for resolution of stressed assets. XXXX RBI has stated that default is a lagging indicator of financial stress in a borrower's account. The framework provides for 180 days after the lagging indicator to cure the stress, in the case of borrowers with aggregate exposure of ₹ 2,000 crore and above, failing which insolvency resolution process under IBC will be triggered, which provides for another 270 days for resolution. Lenders need to be proactive in monitoring their borrowers and be able to identify financial stress using a combination of leading indicators and renegotiation points in the form of loan covenants, rather than wait for a borrower to default. Such early identification of stress and loan modifications in response would provide sufficient time for lenders to put in place the required resolution plan 97. Similarly it noticed the response of the Rural Electrification Corporation and RBI in the following terms: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the scope for PSBs to raise additional market borrowings continue.These measures are expected to assist the PSBs in complying with the regulatory capital requirements and in case of healthier PSBs to also have growth capital. Since substantial parts of stressed assets have been recognized and reasonably provisioned, any further accretion to capital is expected to help any further asset quality stress in the short run and hopefully and eventually support credit growth in the medium to long term while preserving the financial health of our public sector banks. Overall, therefore, we are of the view that the banking system in general including the PSBs is getting stronger with the regulatory and transparency measures undertaken by the RBI and other regulators. The legislative changes brought about through the enactment of IBC and the amendments that have taken place as recently as last week and the financial support to the publicsector banks by the Central Government goads well for the sector. 98. The response of the Ministry of Finance before the Standing Committee when contrasted with the submission of the learned ASG advanced before us leads me to decipher and notice a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... biguous and unclear or, for that matter, to appreciate the background of the enacted law is quite different from referring to it for the purpose of arriving at a factual finding. That may invite a contest, a challenge, a dispute and, if a contest arises, the Court, in such circumstances, will be called upon to rule on the same. 143. In the case at hand, the controversy does not end there inasmuch as the petitioners have placed reliance upon the contents of the parliamentary standing committee report and the respondents submit that they are forced to controvert the same. Be it clearly stated, the petitioners intend to rely on the contents of the report and invite a contest. In such a situation, the Court would be duty bound to afford the respondents an opportunity of being heard in consonance with the principles of natural justice. This, in turn, would give rise to a very peculiar situation as the respondents would invariably be left with the option either to: (i) accept, without contest, the opinion expressed in the parliamentary standing committee report and the facts stated therein; or (ii) contest the correctness of the opinion of the parliamentary standing committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s admissible before it. An individual whose conduct has been commented upon in the report of a parliamentary committee cannot be held guilty of a violation on the basis of that finding. In Jyoti Harshad Mehta v The Custodian, (2009) 10 SCC 564, this Court held that a report of the Janakiraman committee could not have been used as evidence by the Special Court. The court held: 57. It is an accepted fact that the reports of the Janakiraman Committee, the Joint Parliamentary Committee and the Inter Disciplinary Group (IDG) are admissible only for the purpose of tracing the legal history of the Act alone. The contents of the report should not have been used by the learned Judge of the Special Court as evidence. 102. Ashok Bhushan J. while dealing with the issues which would arise where the report of a Parliamentary Committee is questioned or impeached observed thus: 393. We are of the view that the law as broadly expressed in paragraph 58 of the above case cannot be accepted. All references to Parliamentary contempt of Parliament. When a party relies on any fact stated in the report reliance on such report. However, no party can be allowed to question or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Committee, it must be accepted and acted upon per se and of its own. While it is true that the Standing Committee on Energy has gone into the issues faced by the power sector in general and has also commented upon the merits of the directions issued by the RBI, these findings or recommendations alone cannot be read as overriding the view taken and adopted by the RBI. H. IBC AND THE ARGUMENT OF IRREVERSIBLE PREJUDICE 104. I then turn to the submissions addressed on behalf of the petitioners with regard to a fait accompli occurring immediately upon proceedings being initiated under the IBC. In order to appreciate this submission this Court must bear in mind the fact that IBC represents, as has been described by the Supreme Court itself, a paradigm shift in respect of treatment and restructuring of stressed assets. As is evident from a reading of the SOR of IBC, the legislation itself was framed since Parliament found that the existing framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution. It was in that backdrop that the Parliament felt the need to introduce new legislation which would establish an effectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person who is interested in putting the memorandum. This plan must provide for payment of insolvency after approval of the plan, and implementation and supervision of the plan. It is only when such plan is approved by a vote of not less than 75% of the creditors, guarantors and other stakeholders. Importantly, and this is a passed by the authority Under Section 14 shall cease to have effect. The its debts and get back on its feet. All this is to be done within a period of 6 comes down and the liquidation process begins. 106. The Court must bear in mind that there is no challenge to the provisions or the underlying scheme of the IBC. It clearly enjoins a banking or a financial institution to initiate the resolution process upon a default having occurred. As has been rightly pointed out by Sri Kadam, the learned Senior Counsel, all that happens upon the admission of a petition under Section 7 and a moratorium having come into operation is the removal and suspension of the management and the Board of Directors. The corporate debtor continues to exist and is also run as a going concern albeit by a Resolution Professional. The employees and officers of the corporate debtor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank of the country is primordially concerned with issues such as the formulation of monetary policy, public debt, the condition of banks and FI s and the health of the finances of the country. It is essentially charged with the formulation of banking policy designed in the interest of the banking system, monetary stability and sound economic growth. The Court also bears in mind the significant amendments made to the SOR of the 1934 Act as amended in 2016 which reads thus:- RESERVE BANK OF INDIA ACT, 1934 [ Act No. 2 of 1934 amended upto Act No. 28 of 2016] PREAMBLE An Act to constitute a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in [India] and generally to operate the currency and credit system of the country to its advantage; AND WHEREAS it is essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy; AND WHEREAS the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should interfere and tinker with such a policy on merits while exercising its jurisdiction of judicial review under Article 226 of the Constitution. It cannot possibly be disputed that the framing of monetary measures, creation of fiscal policy or management of debt is a highly sensitive and complex exercise. It is in that context that the principles of judicial self restraint and judicial deference have been formulated. It also raises the important issue of institutional competence . The parameters of judicial review which must apply in such a situation have been duly noticed in Chitra Sharma based upon a long line of precedents starting from R.K. Garg Vs. Union of India (1981) 4 SCC 675 . Dealing with the scope of judicial review and more particularly with regard to the directions framed by the RBI, the Supreme Court made the following pertinent observations in Peerless General Finance and Investment Co. Ltd. Vs. RBI (1992) 2 SCC 343: 74. It is well settled that the court is not a Tribunal from the crudities and inequities of complicated experimental economic legislation. The discretion in evolving an economic measures, rests with the policy makers and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores. If the RBI therefore, takes the position that the resolution process in respect of this corporate debtor cannot be delayed beyond the time frame stipulated by it and must be addressed with expedition, I find no fault in the same. After all moneys due and recoverable from the petitioner is public debt. I also bear in mind that this petitioner has even before us not referred to any restructuring proposal which could be said to be pending. Its last proposal was itself based on the said petitioner taking on further debt. One of the pre conditions to this proposal was for the existing lenders ceding their charge over its assets and making it subservient to that of the new creditor. This proposal has already been turned down by the lenders. The lenders who have now stepped into the position of shareholders seek to recover their dues by sale of their equity for which an investor has already been identified. On the individual facts as have been placed before us and which are not disputed, it is evident that no relief in the interim is liable to be granted to the said petitioner. 116. Insofar as the members of IPPA and APP are concerned, it is pertinent to note that the writ pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereon already stands invoked, the moratorium shall have no effect and would not act as a fetter upon further negotiations between the intending investor and the lenders. Secondly, in light of the express provisions of section 28 of IBC, the sale of equity is made subject only to a prior approval by the Committee Of Creditors. Even otherwise, this Court notes that since all the lenders have already agreed to the proposal in principle, even if one lender were to initiate proceedings under the IBC so as to short circuit this process, the same would not take away the right of the majority of lenders equivalent to 90% in the Committee of Creditors to apply for withdrawal from IBC in accordance with section 12 A. 120. The Court is constrained to reiterate here that none of the lenders of Prayagraj were present before the Court. Ultimately the Court has been left to consider the challenge at the hands of the management which retains a mere 10% of the share capital of the corporate debtor. It is this aspect which has perhaps led the RBI to allege that it is a dressed up attempt by the entrenched management to retain control. 121. This Court therefore is constrained to record tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival submissions, I am prima facie of the opinion that the contention is not tenable. Firstly RBI stands expressly conferred with the authority to issue directions to a banking company/companies on the subject of resolution of stressed assets. Resolution of stressed assets can take place both within and outside the contours of IBC. In fact the impugned directive undisputedly deals with corporate debt resolution outside IBC. As I read the directions, it appears that the same have been essentially framed to underline, reiterate and emphasise the emergent need to deal with stressed assets and to initiate a RP with expedition. It primarily appears to emphasise a speedy resolution of a stressed asset. Banks cannot be accepted to state that while a default has occurred, a resolution process shall not be initiated. More fundamentally, to hold that individual banks would have the discretion not to invoke IBC notwithstanding a direction of the RBI would be to ignore the amplitude of the powers conferred upon the central bank by virtue of sections 21, 35A and 35AB of the 1949 Act. M. THE SEMINAL ISSUES 126. While this Court has refused the prayer for interim relief, these th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on whether to initiate the process envisaged under section 7. 128. Reverting to the impugned directive, the Court notes that in terms of paragraph 5 and more particularly clause (b) (i) thereof, it appears that the RBI construes a RP to be implemented only if a restructuring plan enjoys the approval of all lenders. The Court notices this aspect since in terms of the provisions of the IBC a RP shall stand approved if it enjoys the approval of 66% of the lenders in the Committee of Creditors. Paragraph 5 may lead to a situation where a lender even in a minuscule percentage may stall the implementation of a RP. This Court also takes note of the fact that originally sub section (3) of Section 28 required the approval of 75% of the creditors. This percentage as prescribed therein was amended and presently stands reduced to 66%. RBI must therefore be called upon to explain the logic and the necessity of the restructuring plan enjoying the approval of the entire consortium of lenders. 129. The third aspect of significance which prima facie arises flows from paragraph 6. Paragraph 6 provides that all RP s involving restructuring/change would require an independent credit eva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it is also required to be referred for CIRP. RBI has carried out power to issue binding directions. The position of the RBI as an expert been reiterated in several decisions of this Court: [R.K. Garg v. Union of India (1981) 4 SCC 675, Peerless General Finance and Investment Co. Ltd. v. RBI (1992) 2 SCC 343, TN Generation and Distribution Corporation Ltd. v. CSEPDI-Trishe Consortium (2017) 4 SCC 318. 41. JAL was classified under the SMA - II category (demands overdue for more than 60 days) by banks as early as on 3 October 2014 and as an NPA since 31 March 2015. We agree with the submission of the RBI that any found for JAL and JIL. The facts which have emerged before the Court from and JIL. The apprehensions of the home-buyers in regard to their financial incapacity is borne out by RBI, as a responsible institution has urged before the Court. The IBC has been enacted in the form of a comprehensive bankruptcy law and with a specific legislative intent. With the amendment brought about by the Ordinance promulgated in June 2018, the interests of the home buyers have been sought to be safeguarded. Accordingly, we accede to the request made on behalf of the RBI to allow it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the presently unclear position of the Union, which prevaricated on the issue of either the necessity of initiating the consultative process and whether it was even considering invoking its powers under section 7 of the 1934 Act. However as observed hereinbefore, the Union cannot remain irresolute and undecided. If it stand convinced that the impugned directive merits modulation, then it must consider taking recourse to the statutory mechanism placed and initiate the process of consultation. Its position of ambivalence cannot be permitted to perpetuate. Such issues should be resolved between the two governmental organs and should require no intervention of the Court. 133. RBI is essentially a monetary and fiscal regulator. It does not appear to be specifically charged with the function of framing sectoral resurrection measures or to fix incipient or seething problems faced by a particular industry. It would appear that it is essentially obliged to take a macro look at the financial sector and the fiscal condition of the country as a whole. If it be the stand of the Union that a particular industry merits independent consideration in light of its own peculiar facts, then it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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