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2019 (4) TMI 230

romulgated a revised framework for resolution of stressed assets - Held that:- Section 21 makes it clear that the RBI may control advances made by banking companies in public interest, and in so doing, may not only lay down policy but may also give directions to banking companies either generally or in particular. Similarly, under Section 35A, vast powers are given to issue necessary directions to banking companies in public interest, in the interest of banking policy, to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the banking company, or to secure the proper management of any banking company. It is clear, therefore, that these provisions which give the RBI certain regulatory powers cannot be said to be manifestly arbitrary. - When it comes to lack of any guidelines by which the power given to the RBI is to be exercised, it is clear from a catena of judgments that such guidance can be obtained not only from the Statement of Objects and Reasons and the Preamble to the Act, but also from its provisions. - A cursory reading of Section 35A makes it clear that .....

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he Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est. - The transferred cases and petitions are disposed off. - TRANSFERRED CASE (CIVIL) NO.66 OF 2018 IN TRANSFER PETITION (CIVIL) NO.1399 OF 2018 - 2-4-2019 - IN THE SUPREME COURT OF INDIA WRIT PETITION (CIVIL) NO.339 OF 2018 WRIT PETITION (CIVIL) NO.802 OF 2018 WRIT PETITION (CIVIL) NO.1086 OF 2018 WRIT PETITION (CIVIL) NO.1110 OF 2018 WRIT PETITION (CIVIL) NO.1124 OF 2018 WRIT PETITION (CIVIL) NO.1142 OF 2018 WRIT PETITION (CIVIL) NO.1138 OF 2018 WRIT PETITION (CIVIL) NO.1156 OF 2018 WRIT PETITION (CIVIL) NO.1153 OF 2018 WRIT PETITION (CIVIL) NO.1166 OF 2018 WRIT PETITION (CIVIL) NO.1206 OF 2018 WRIT PETITION (CIVIL) NO.1212 OF 2018 WRIT PETITION (CIVIL) NO.1236 OF 2018 WRIT PETITION (CIVIL) NO.1296 OF 2018 SLP(C) NO. 31421 OF 2018 WRIT PETITION (CIVIL) NO.1316 OF 2018 WRIT PETITION (CIVIL) NO.1308 OF 2018 WRIT PETITION (CIVIL) NO .....

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ed 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 Insolvency and Bankruptcy Code, 2016 (IBC), it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets. The details of the revised framework are elaborated in the following paragraphs. I. Revised Framework A. Early identification and reporting of stress 2. Lenders1 shall identify incipient stress in loan accounts, immediately on default2, by classifying stressed assets as special mention accounts (SMA) as per the following categories: SMA Sub- categories Basis for classification - Principal or interest payment or any other amount wholly or partly overdue between SMA-0 1-30 days SMA-1 31-60 days SMA-2 61-90 days 3. As provided in terms of the circular DBS.OSMOS.No.14703/33.01.001/2013-14 dated May 22, 2014 and subsequent amendments thereto, lenders shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC) on all borrower entities having aggregate exposure3 o .....

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ire one ICE. Only such RPs which receive a credit opinion of RP46 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 to be considered for implementation. xxx xxx xxx D. Timelines for Large Accounts to be Referred under IBC 8. In respect of accounts with aggregate exposure of the lenders at ₹ 20 billion and above, on or after March 1, 2018 ( reference date ), including accounts where resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods (as per the previous guidelines), RP shall be implemented as per the following timelines: i. If in default as on the reference date, then 180 days from the reference date. ii. If in default after the reference date, then 180 days from the date of first such de .....

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hat date, lenders shall file applications singly or jointly under the Insolvency Code within 15 days from the expiry of the aforesaid 180 days. In short, unless a restructuring process in respect of debts with an aggregate exposure of over INR 2000 crore is fully implemented on or before 195 days from the reference date or date of first default, the lenders will have to file applications as financial creditors under the Insolvency Code. It will be noticed that the sources of power for issuance of the aforesaid circular have been stated to be Section 35A of the Banking Regulation Act read with the Central Government s circular dated 05.05.2017, Sections 35AA and 35AB of the said Act, and Section 45L of the Reserve Bank of India Act, 1934 [ RBI Act ]. It may be stated here that by an order dated 11.09.2018, this Court allowed various transfer petitions and made orders in Writ Petition No. 1086 of 2018, by which it was ordered that status quo as of today shall be maintained in the meantime. As a result, insofar as the petitions and transferred cases in this Court are concerned, the circular has, in effect, been stayed on and from 11.09.2018. 3. The charge on behalf of the petitioners .....

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ack occurred in August/September, 2014 as coal mines allocated to the power sector were cancelled by the Supreme Court by a judgment in Manohar Lal Sharma v. Principal Secretary and Ors., (2014) 9 SCC 516. Remedial measures such as the SHAKTI Scheme were introduced only after three years of the Supreme Court judgment on 22.05.2017. Even this Scheme limited supply of coal to 75 per cent of the assured coal supply as against what was assured in 2007. All this was commented on by the 37th and 40th Parliamentary Standing Committee Reports. In so far as the gas-based plants are concerned, the 42nd Parliamentary Standing Committee Report referred to the same tale of woe as in coal based power plants - gas, in which the power sector was originally given priority, was later placed in 2013-14 under a no-cut category, leading to drastic reduction in supply of gas to the power sector. Dr. Singhvi also referred to various reports showing that as on October, 2018, DISCOMs only paid INR 8,710 crore against dues of approximately INR 39,500 crore to generating companies. This situation gets exacerbated by delay in adjudication and consequent payment by DISCOMs. He then referred to preferential tre .....

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stic approach for stress-resolution, the RBI should look at sector-friendly measures. (b) Revised framework introduced by the RBI has been done ignoring the prevailing realities. (c) Repayment of 20 per cent of the outstanding principal debt as per the RBI Circular is impracticable for power sector entities, and accordingly, the circular disincentivizes restructuring with the existing promoters. (d) Forced sale before the NCLT will cause a big sacrifice of public money without any benefit to the economy or the power sector. (e) The power sector should be protected since it is going through a transition phase from a low-demand- low-supply situation to a moderately-high-demand situation, which is temporary in nature. 5. Dr. Singhvi then referred to a challenge that was made to the RBI Circular in the Allahabad High Court in Independent Power Producers Association of India v. Union of India and Ors., Writ - C No. 18170 of 2018. He referred to a copy of the order dated 31.05.2018, by which the Allahabad High Court ordered: 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 rep .....

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…… 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 Mehta, learned ASG, submitted that it is desirable, while considering the sector (power) specific issues that a timeline prescribed under the circular be made effective after 180 days from 27.08.2018 and subsequent steps be taken by the parties based upon the reports of the High Level Empowered Committee presided over by the Cabinet Secretary. He submitted, the time can be extended at this stage and not once process under IBC is set in motion. He also referred to the fact that a High Level Empowered Committee is to be set up as follows: 42. In this backdrop, I am inclined to direct the High Level Empowered Committee to submit its report within two months from the date of its constitution. The Ministry of Power shall invite a senior officer of the RBI, after consultation with the Governor of RBI, 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 .....

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from the account of States and make payment to the PFIs. 8. PPAs, Fuel Supply Agreements (FSA) and LTOA for transmission of power, EC/FC clearances, and all other approvals including water, be kept alive and not cancelled by the respective agencies even if the project is referred to NCLT or is acquired by any other entity. All of these may be linked to the plant and not the Promoter. 9. In order to revive gas based power plants, Ministry of Power and Ministry of Petroleum & Natural Gas may jointly devise a scheme in line with the earlier e-bid RLNG Scheme (supported by PSDF). Dr. Singhvi, therefore, argued that despite the fact that a representative of the RBI attended meetings of the Parliamentary Standing Committee, the RBI Circular was issued in complete disregard of the recommendations of such Reports, both before and after the impugned circular. According to him, therefore, to apply a 180-day limit to all sectors of the economy without going into the special problems faced by each sector would treat unequals equally and would be arbitrary and discriminatory, and therefore, violative of Article 14 of the Constitution of India. Also, picking up at random all defaults amounti .....

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Shri Sajan Poovayya, Shri K.V. Viswanathan, Shri Neeraj Kishan Kaul, Shri Navaniti Prasad Singh, Shri P.S. Narsimha, Shri Arvind P. Datar, and Shri Gopal Jain, learned Senior Advocates, and Shri Pulkit Deora, Smt. Purti Marwaha Gupta, and Shri E.R. Kumar, learned Advocates, have also supported the submissions of Dr. Singhvi. These counsel have appeared in cases involving many other sectors, such as telecom, steel, infrastructure, sports infrastructure, sugar, fertiliser, shipyard, etc. Each of them has highlighted the difficulties faced as a result of Government policies and other reasons for financial stress in all these sectors, which have nothing to do with the efficiency of management of companies operating in these sectors. All of them have adopted the arguments of Dr. Singhvi in stating that, without looking into each individual sector s problems and attempting to solve them, the RBI circular applies down the board to good and bad alike, and, despite the fact that some corporate debtors are on the brink of resolution, the chopper of 180 days comes down on them and they are driven into the Insolvency Code. The Government has recognised that, for example, in the sports infrastr .....

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e, that cannot take the matter much further. Also, it is important to notice that though the executive, i.e., the Government could also have acted in terms of these Reports, it has chosen not to do so. For this purpose, he relied upon Section 7 of the RBI Act, under which the Central Government may, from time to time, give such directions to the RBI that it may consider necessary in public interest, after consultation with the Governor of the RBI. The sheet anchor of the petitioners case, therefore, disappears as all these Parliamentary Standing Committee Reports do not take the petitioners anywhere, not having been acted upon either by the Parliament or by the Central Government. This is for the very good reason that ultimately, it is in public interest to either resolve stressed assets within a certain timeframe, or if incapable of such resolution, the route of the Insolvency Code should then be followed. So far as the vires of Sections 35AA and 35AB are concerned, Shri Dwivedi relied upon our recent judgment in Swiss Ribbons Pvt. Ltd. and Anr. v. Union of India and Ors., 2019 (2) SCALE 5 [ Swiss Ribbons ], saying that great leeway must be given to Parliament to deal with the pro .....

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tant to note the genesis of the impugned circular. By a press release dated 13.06.2017, the RBI identified certain accounts for reference by banks under the Insolvency Code. This press release reads as follows: RBI identifies Accounts for Reference by Banks under the Insolvency and Bankruptcy Code (IBC) The Reserve Bank of India had issued a Press Release on May 22, 2017 outlining the steps taken and those on the anvil pursuant to the promulgation of the Banking Regulation (Amendment) Ordinance, 2017. The Press Release had mentioned inter alia that the RBI would be constituting a Committee comprised majorly of its independent Board Members to advise it in regard to the cases that may be considered for reference for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC). 2. An Internal Advisory Committee (IAC) was accordingly constituted and it held its first meeting on June 12, 2017. The IAC, in the meeting, agreed to focus on large stressed accounts at this stage and accordingly took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system. 3. The IAC also arrived at an objective, n .....

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cided, on 25.08.2017, that out of the 59 remaining NPA accounts of the top 500 exposures, accounts which are materially NPA (i.e., where 60 per cent of the total outstanding has become NPA by 30.06.2017) may be given time till 13.12.2017 for resolution. If the banks fail to finalise and implement a viable resolution plan by the said date, banks will be required to file applications under Insolvency Code before 31.12.2017. The IAC noted that applying this criterion will cover 29 NPA accounts, with total outstanding of INR 135,846 crore and total fund-based NPAs of INR 111,848 crore as on 30.06.2017. It is pertinent to note that on 28.08.2017, the RBI issued a letter directing banks to attempt resolution of the accounts in this Second List by 13.12.2017. As regards the residual accounts, out of the initially identified 71 NPA accounts, the IAC recommended that such accounts may be addressed through a steady-state framework for resolution of stressed assets in a time-bound manner and failing such resolution, the accounts be referred to for resolution under the Insolvency Code. Accordingly, the RBI formulated and issued the revised framework vide its circular dated 12.02.2018. 15. Mean .....

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ution of stressed assets. The SARFAESI and Debt Recovery Acts have been amended to facilitate recoveries. A comprehensive approach is being adopted for effective implementation of various schemes for timely resolution of stressed assets. (emphasis supplied) The Banking Regulation (Amendment) Ordinance, 2017 was then enacted as follows: MINISTRY OF LAW AND JUSTICE 4th May, 2017 An Ordinance further to amend the Banking Regulation Act, 1949. 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 Coe, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and 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 WHEREAS the provisions of Insolvency and Bankruptcy Code, 2016 can be effectively used for the resolution of stressed assets by empowering the banking regulator to issue directions in specific cases; AND WHEREAS Parliament is not in ses .....

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lation (Amendment) Ordinance, 2017 was promulgated by the President on the 4th May, 2017. 3. The Banking Regulation (Amendment) Bill, 2017 which seeks to replace the Banking Regulation (Amendment) Ordinance, 2017, provides for the following, namely:- (a) to confer power upon the Central Government for authorising the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016; (b) to confer power upon the Reserve Bank to issue directions to banking companies for resolution of stressed assets and also allow the Reserve Bank to specify one or more authorities or committees to advise banking companies 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. xxx xxx xxx 14th July, 2017. (emphasis supplied) Sections 35AA and 35AB were then legislatively introduced as follows: THE BANKING REGULATION (AMENDMENT) ACT, 2017 xxx xxx xxx [25th August, 2017] 2. In the Banking Regulation Act, 1949 (hereinafter .....

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s that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate legislation made under it. This process is an ongoing process which involves all stakeholders, including the petitioners. It is in this background that legislation affecting the economy is to be viewed. This Court, in Shayara Bano v. Union of India, (2017) 9 SCC 1 has made it clear that Article 14 may be infracted by legislation on the ground of such legislation being manifestly arbitrary. This Court has said in this behalf: 101. It will be noticed that a Constitution Bench of this Court in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India [Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC 641 : 1985 SCC (Tax) 121] stated that it was settled law that subordinate legislation can be challenged on any of the grounds available for challenge against plenary legislation. This being the case, there is no rational distinction between the two types of legislation when it comes to this ground of challenge under Article 14. The test of manifest arbitrariness, therefore, as laid down in the .....

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the permissible limits is again without any merit. It was settled by the majority judgment in the Delhi Laws Act case [1951 SCR 747] that essential powers of legislature cannot be delegated. In other words, the legislature cannot delegate its function of laying down legislative policy in respect of a measure and its formulation as a rule of conduct. The legislature must declare the policy of the law and the legal principles which are to control any given cases and must provide a standard to guide the officials or the body in power to execute the law. The essential legislative function consists in the determination or choice of the legislative policy and of formally enacting that policy into a binding rule of conduct. In the present case the legislature has laid down such a principle and that principle is the maintenance or increase in supply of essential commodities and of securing equitable distribution and availability at fair prices. The principle is clear and offers sufficient guidance to the Central Government in exercising its powers under Section 3. Delegation of the kind mentioned in Section 3 was upheld before the Constitution in a number of decisions of their Lordships of .....

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individual officers or other authorities, however competent they may be, for that of the popular will as expressed by the representatives of the people. As observed on p. 224 of Vol. I in Cooley s Constitutional Limitations 8th Edn.: One of the settled maxims in constitutional law is, that the power conferred upon the Legislature to make laws cannot be delegated by that department to any other body or authority. Where the sovereign power of the State has located the authority, there it must remain; and by the constitutional agency alone the laws must be made until the Constitution itself is changed. The power to whose judgment, wisdom, and patriotism this high prerogative has been entrusted cannot relieve itself of the responsibility by choosing other agencies upon which the power shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other body for those to which alone the people have seen fit to confide this sovereign trust. xxx xxx xxx 15. The Constitution, as observed by this Court in the case of Devi Das Gopal Krishnan v. State of Punjab [AIR 1967 SC 1895 : (1967) 3 SCJ 557 : (1967) 20 STC 430] confers a power and imposes a duty on the Legislatur .....

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sed by the legislature declares the legislative policy and lays down the standard which is enacted into a rule of law, it can leave the task of subordinate legislation like the making of rules, regulations or by-laws which by its very nature is ancillary to the statute to subordinate bodies. The subordinate authority must do so within the framework of the law which makes the delegation, and such subordinate legislation has to be consistent with the law under which it is made and cannot go beyond the limits of the policy and standard laid down in the law. As long as the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere with the discretion that undoubtedly rests with the Legislature itself in determining the extent of delegation necessary in a particular case [see observations of Wanchoo, C.J., in Municipal Corporation of Delhi v. Birla Mills.]. 18. In Harishankar Bagla v. State of Madhya Pradesh [AIR 1954 SC 465 : (1955) 1 SCR 380 : 1954 Cri LJ 1322] this Court dealt with the validity of clause 3 of the Cotton Textile (Control of Movement) Order, 1948 promulgated by the Central Government under Section 3 of the Ess .....

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tal to the interests of the depositors; (xi) Provision for bringing the Reserve Bank of India into closer touch with banking companies; xxx xxx xxx (xiv) Widening the powers of the Reserve Bank of India so as to enable it to come to the aid of banking companies in times of emergency; xxx xxx xxx Sections 14A, 17, 18, and 20 impose various restrictions on a banking company. Thus, it is prohibited from having a floating charge on assets; it has to maintain a reserve fund, and a cash reserve; and it cannot grant loans and advances on the security of its own shares, or on behalf of its directors, or any firm in which its directors are interested etc. A banking company is obligated to hold a license that is issued by the RBI, by which the RBI can impose such conditions as it thinks fit under Section 22 of the Act. Section 22(3), in particular, gives guidance as to how the banking company will run its business. These and other regulatory sections such as Sections 25, 29, 30, and 31, all give guidance as to how the RBI is to exercise these powers under the newly added provisions. We, therefore, agree with Shri Dwivedi that there was no dearth of guidance for the RBI to exercise the powers .....

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ware of an enlarged meaning the same concept might attract with the march of time and with the revolutionary changes brought about in social, economic, political and scientific and other fields of human activity. Indeed, unless a contrary intention appears, an interpretation should be given to the words used to take in new facts and situations, if the words are capable of comprehending them. We cannot, therefore, agree with the learned Judges of the High Court that the maxim contemporanea expositio could be invoked in construing the word telegraph line in the Act. For the said reasons, we hold that the expression telegraph line is sufficiently comprehensive to take in the wires used for the purpose of the apparatus of the Post and Telegraph Wireless Station. (at pp. 156-157) (emphasis supplied) 20. Guidance on whether a statute can apply to new situations not in contemplation of Parliament when the statute was enacted was felicitously set out by Lord Wilberforce in his dissenting judgment in Royal College of Nursing of the United Kingdom v. Department of Health and Social Security, [1981] 1 All ER 545 [HL] as follows: In interpreting an Act of Parliament it is proper, and indeed ne .....

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lature. There is a clear answer to this appeal to Victorian history. Unless they reveal a contrary intention all statutes are to be interpreted as always speaking statutes . This principle was stated and explained in R v Ireland, R v Burstow [1997] 4 All ER 225 at 233, [1998] AC 147 at 158. There are at least two strands covered by this principle. The first is that courts must interpret and apply a statute to the world as it exists today. That is the basis of the decision in R v Ireland where bodily harm in a Victorian statute was held to cover psychiatric injury. Equally important is the second strand, namely that the statute must be interpreted in the light of the legal system as it exists today. In the classic work of Sir Rupert Cross, Statutory Interpretation (3rd edn, 1995) pp 51-52, the position is explained as follows: The somewhat quaint statement that a statute is always speaking appears to have originated in Lord Thring s exhortations to drafters concerning the use of the word shall : An Act of Parliament should be deemed to be always speaking and therefore the present or past tense should be adopted, and shall should be used as an imperative only, not as a future . But t .....

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0, even though it includes methods of conveyance which would not have been imagined by a legislator of those days. The same is true of social standards. The concept of cruelty is the same today as it was when the Bill of Rights 1688 (1 Will & Mary, sess 2, c 2) forbade the infliction of cruel and unusual punishments (section 10). But changes in social standards mean that punishments which would not have been regarded as cruel in 1688 will be so regarded today. This doctrine does not however mean that one can construe the language of an old statute to mean something conceptually different from what the contemporary evidence shows that Parliament must have intended. So, for example, in the recent case of Goodes v East Sussex County Council [2000] 3 All ER 603, [2000] 1 WLR 1356, the House of Lords decided that the statutory duty of highway authorities to maintain the highway did not include the removal of ice and snow. Although the word maintain was capable of including the removal of ice and snow and such removal might be expected by modern road users, the contemporary evidence showed that the concept of maintenance in the legislation was confined to keeping the fabric of the ro .....

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annot interdict the use of Section 35A as a source of power for the impugned RBI circular on the ground that the Insolvency Code, 2016 could not be said to have been in the contemplation of Parliament in 1956, when Section 35A was enacted. Dr. Singhvi s contention must, therefore, fail. 25. Dr. Singhvi then relied upon the judgment in Indian Banks Association (supra). In this case, the power of the RBI under Section 35A of the Banking Regulation Act was held not to extend to granting approval to banks under a separate and distinct enactment, namely, the Interest Tax Act, 1974. In this context, this Court held: 37. The submission of the learned counsel for the appellants to the effect that they had been permitted to enhance the rate of interest by the Reserve Bank of India, is equally misconceived. The Reserve Bank of India apparently proceeded on the basis that the mode of calculation of rate of interest vis-à-vis the tax under the Act, as contended by Appellant 1, was correct. The Reserve Bank of India was not an authority for construction of a statute. Its functions are confined only to the provisions of the Reserve Bank of India Act and the Banking Regulation Act and not .....

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es. Even otherwise, according to Shri Dwivedi, the RBI directions are at a stage anterior to the application of the provisions of the Insolvency Code, as a result of which, this judgment would have no application. 26. We are of the view that Shri Dwivedi is right. If a specific provision of the Banking Regulation Act makes it clear that the RBI has a specific power to direct banks to move under the Insolvency Code against debtors in certain specified circumstances, it cannot be said that they would be acting outside the four corners of the statutes which govern them, namely, the RBI Act and the Banking Regulation Act. On this score, therefore, Dr. Singhvi s contention must fail. 27. Shri Dwivedi has cited certain judgments stating that discretionary powers given to the RBI under the Banking Regulation Act generally, and under Section 35A, in particular, are broad and expansive, and have been expansively expounded upon by this Court. He relied, in particular, upon Central Bank of India v. Ravindra, (2002) 1 SCC 367. In particular, he relied upon paragraph 51 and paragraph 55 (5) which state: 51. The Banking Regulation Act, 1949 empowers the Reserve Bank, on it being satisfied that i .....

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rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of accounts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under: xxx xxx xxx (5) The power conferred by Sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with duty to act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding .....

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t to Sections 21 and 35A of the RBI Act as follows: 35. Section 21 deals with the power of RBI to control advances by banking companies. Section 21 empowers RBI to frame policies in relation to advances to be followed by banking companies. It further says that once such policy is made all banking companies shall be bound to follow them. Section 21(1) is once again a general provision empowering RBI to determine policy in relation to advances whereas Section 21(2) empowers RBI to give directions to banking companies as to items mentioned there i.e. in Section 21(2). Under Section 21(3) every banking company is bound to comply with directions given by RBI at the peril of penalty being levied for non-compliance. Section 35-A says that where RBI is satisfied that in the interest of banking policy it is necessary to issue directions to banking companies it may do so from time to time and the banking companies shall be bound to comply with such directions. Thus, in exercise of the powers conferred by Sections 21 and 35- A of the said Act, RBI can issue directions having statutory force of law. Section 36 deals with further powers and functions of RBI. Under Section 39 it is RBI which sha .....

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Where the Reserve Bank is satisfied, in consultation with the Central Government, that in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such banking company for a period not exceeding six months as may be specified in the order: Provided that the period of supersession of the Board of Directors may be extended from time to time, so, however, that the total period shall not exceed twelve months. xxx xxx xxx This Section makes it clear that the RBI s satisfaction in superseding the board of directors of banking companies can only be exercised in consultation with the Central Government, and not otherwise. Similarly, under Sections 36AE and 36AF, the Central Government alone has the power to acquire undertakings of banking companies in certain cases, on receipt of a report from the RBI. Section 36AE(1) reads as follows: 36AE. Power of Central Government to acquire underta .....

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(b) a banking company shall preserve and keep with itself different instruments paid by it. Under Section 52(1), the Central Government may, after consultation with the RBI, make rules to give effect to the provisions of the Act as follows: 52. Power of Central Government to make rules.- (1) The Central Government may, after consultation with the Reserve Bank, make rules to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act and all such rules shall be published in the Official Gazette. xxx xxx xxx Importantly, the Central Government may, on the recommendation of the RBI, declare that all or any of the provisions of the Banking Regulation Act shall not apply to any banking company, either generally or for a prescribed period. Section 53(1) of the Act reads as follows: 53. Power to exempt in certain cases.-(1) The Central Government may, on the recommendation of the Reserve Bank, declare, by notification in the Official Gazette, that any or all of the provisions of this Act shall not apply to any banking company or institution or to any class of banking companies either generally or for such period as .....

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ave been enacted. A Magistrate, therefore, cannot in the course of investigation record a confession except in the manner laid down in Section 164. The power to record the confession had obviously been given so that the confession might be proved by the record of it made in the manner laid down. If proof of the confession by other means was permissible, the whole provision of Section 164 including the safeguards contained in it for the protection of accused persons would be rendered nugatory. The section, therefore, by conferring on Magistrates the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him. (at pp. 490-491) Following this principle, therefore, it is clear that the RBI can only direct banking institutions to move under the Insolvency Code if two conditions precedent are specified, namely, (i) that there is a Central Government authorisation to do so; and (ii) that it should be in respect of specific defaults. The Section, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in Section 35AA. 32. .....

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ad. No provision in the statute and no word of the statute may be construed in isolation. Every provision and every word must be looked at generally before any provision or word is attempted to be construed. The setting and the pattern are important. It is again important to remember that Parliament does not waste its breath unnecessarily. Just as Parliament is not expected to use unnecessary expressions, Parliament is also not expected to express itself unnecessarily. Even as Parliament does not use any word without meaning something, Parliament does not legislate where no legislation is called for. Parliament cannot be assumed to legislate for the sake of legislation; nor can it be assumed to make pointless legislation. Parliament does not indulge in legislation merely to state what it is unnecessary to state or to do what is already validly done. Parliament may not be assumed to legislate unnecessarily. Again, while the words of an enactment are important, the context is no less important. For instance: ...the fact that general words are used in a statute is not in itself a conclusive reason why every case falling literally within them should be governed by that statute, and the .....

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ly, that it is without prejudice to any other provision contained in this Chapter (meaning thereby Chapter IV). This expression only means that apart from the Central Government's other powers contained in Chapter IV, Section 26-A is an additional power which must be governed by its own terms. Under Section 26-A, the Central Government must be satisfied that any drug or cosmetic is likely to involve (i) any risk to human beings or families; or (ii) that any drug does not have the therapeutic value claimed or purported to be claimed for it; or (iii) contains ingredients in such quantity for which there is no therapeutic justification. Obviously, the Central Government has to apply its mind to any or all of these three factors which has to be based upon its satisfaction as to the existence of any or all of these factors. The power exercised under Section 26-A must further be exercised only if it is found necessary or expedient to do so in public interest. When the power is so exercised, it may regulate, restrict or prohibit manufacture, sale or distribution of any drug or cosmetic. Thus, the power to issue directions given by Section 35AB is in addition to the power that is given .....

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s Note dated 05.05.2017, set out supra, explained the new Sections 35AA and 35AB as the grant of two distinct and separate powers. Section 35AA has been inserted to resolve specific stressed assets by initiating insolvency resolution process where required . On the other hand, Section 35AB has been enacted so that the RBI has also been empowered to issue other directions for resolution…… It is significant that Section 35AA is enacted exactly as it is in the Ordinance. So is Section 35AB, except for a minor addition in sub-section (1), which adds the words any banking company or . Indeed, even the Statement of Objects and Reasons introducing the same Sections by way of an Amendment Act makes it clear that the powers conferred for resolution of stressed assets, either by invoking the Insolvency Code or by other means, are separate and independent powers, as set out in paragraphs 3(a) and 3(b) of the said Statement of Objects and Reasons. Therefore, the scheme of Sections 35A, 35AA, and 35AB is as follows: (a) When it comes to issuing directions to initiate the insolvency resolution process under the Insolvency Code, Section 35AA is the only source of power. (b) When it .....

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in the same statute and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply . The rule has been applied as between different provisions of the same statute in numerous cases some of which only need be mentioned: De Winton v. Brecon [28 LJ Ch 598], Churchill v. Crease [5 Bing 177], United States v. Chase [135 US 255] and Carroll v. Greenwich Ins. Co. [199 US 401]. This judgment has been followed in Commercial Tax Officer, Rajasthan v. Binani Cements Ltd. and Anr., (2014) 8 SCC 319 [at paragraph 39]. 40. Stressed assets can be resolved either through the Insolvency Code or otherwise. When resolution through the Code is to be effected, the specific power granted by Section 35AA can alone be availed by the RBI. When resolution de hors the Code is to be effected, the general powers under Sections 35A and 35AB are to be used. Any other interpretation would make Section 35AA otiose. In fact, Shri Dwivedi s argument that the RBI can issue directions to a banking company in respect of initiating insolvency .....

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dated 05.05.2017, which introduced the Ordinance which specifically referred to resolution of specific stressed assets which will empower the RBI to intervene in specific cases of resolution of NPAs. The Statement of Objects and Reasons for introducing Section 35AA also emphasises that directions are in respect of a default . Thus, it is clear that directions that can be issued under Section 35AA can only be in respect of specific defaults by specific debtors. This is also the understanding of the Central Government when it issued the notification dated 05.05.2017, which authorised the RBI to issue such directions only in respect of a default under the Code. Thus, any directions which are in respect of debtors generally, would be ultra vires Section 35AA. 43. However, Shri Dwivedi argued that specific cases would include specification by category or class. All the definitions given by him in his written argument, however, belie this. Thus, in the Oxford Dictionary, the word specific is defined as follows: Specific / adjective 1. clearly defined. 2. relating to particular subject; peculiar. 3. exact; giving full details. 4. archaic (of medicine etc.) for a particular disease. Noun .....

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one of its sources, the power contained in Section 45L of the RBI Act insofar as non-banking financial institutions are concerned. Non-banking financial institutions are referred to in Section 45-I(c) as follows: 45-I. Definitions.-In this Chapter, unless the context otherwise requires,- xxx xxx xxx (c) financial institution means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:- (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own; (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature; (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire- Purchase Act, 1972; (iv) the carrying on of any class of insurance business; (v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto; (vi) collecting, for any purpose .....

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terest, on which it is provided. (3) In issuing directions to any financial institution under clause (b) of sub-section (1), the Bank shall have due regard to the conditions in which, and the objects for which, the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institution is likely to have on trends in the money and capital markets. There is nothing to show that the provisions of Section 45L(3) have been satisfied in issuing the impugned circular. The impugned circular nowhere says that the RBI has had due regard to the conditions in which and the objects for which such institutions have been established, their statutory responsibilities, and the effect the business of such financial institutions is likely to have on trends in the money and capital markets. Further, it is clear that the impugned circular applies to banking and non-banking institutions alike, as banking and non-banking institutions are often in a joint lenders forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugne .....

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