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TMI Blog2019 (4) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... IL) NO.1374 OF 2018 TRANSFERRED CASE (CIVIL) NO.71 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1283 OF 2018 TRANSFERRED CASE (CIVIL) NO.73 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1285 OF 2018 TRANSFERRED CASE (CIVIL) NO.72 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1284 OF 2018 TRANSFERRED CASE (CIVIL) NO.75 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1287 OF 2018 TRANSFERRED CASE (CIVIL) NO.76 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1288 OF 2018 TRANSFERRED CASE (CIVIL) NO.74 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1286 OF 2018 TRANSFERRED CASE (CIVIL) NO.70 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1403 OF 2018 TRANSFERRED CASE (CIVIL) NO.69 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1402 OF 2018 TRANSFERRED CASE (CIVIL) NO.68 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1401 OF 2018 TRANSFERRED CASE (CIVIL) NO.67 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1400 OF 2018 WRIT PETITION (CIVIL) NO.1383 OF 2018 WRIT PETITION (CIVIL) NO.1402 OF 2018 WRIT PETITION (CIVIL) NO.1400 OF 2018 WRIT PETITION (CIVIL) NO.1391 OF 2018 WRIT PETITION (CIVIL) NO.1411 OF 2018 WRIT PETITION (CIVIL) NO.1410 OF 2018 WRIT PETITION (CIVIL) NO.1438 OF 2018 WRIT PETITION (CIVIL) NO.22 OF 2019 WRIT PETITION (CIVIL) NO.150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs. 50 million and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday. The first such weekly report shall be submitted for the week ending February 23, 2018. B. Implementation of Resolution Plan 4. All lenders must put in place Board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. As soon as there is a default in the borrower entity's account with any lender, all lenders − singly or jointly − shall initiate steps to cure the default. The resolution plan (RP) may involve any actions / plans / reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring4. The RP shall be clearly documented by all the lenders (even if there is no change in any terms and conditions). C. Implementation Conditions for RP 5. A RP in respect of borrower entities to whom the lenders continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC)7 within 15 days from the expiry of the said timeline8. xxx xxx xxx 12. For other accounts with aggregate exposure of the lenders below Rs. 20 billion and, at or above Rs. 1 billion, the Reserve Bank intends to announce, over a two-year period, reference dates for implementing the RP to ensure calibrated, time-bound resolution of all such accounts in default. xxx xxx xxx V. Withdrawal of extant instructions 18. The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn with immediate effect. Accordingly, the Joint Lenders' Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Producers, representing the power sector in general. According to the learned Senior Advocate, the Electricity Act, 2003 ["Electricity Act"] was enacted as a complete code to regulate the private sector. According to him, unlike sectors such as the steel and cement sector, the power sector is fully regulated and tariffs that are fixed can only be after they are so determined / adopted by Electricity Regulatory Commissions under Section 62 or Section 63 of the Electricity Act. The power sector, therefore, is a player in a restricted market - power can only be purchased by distribution licensees or trading licensees under Section 12 of the Electricity Act, which can only be done with the prior approval of State Electricity Regulatory Commissions. Even transmission of power requires prior approval of transmission licensees, and therefore, substitutability of buyers is impossible since the means to supply power are not readily available. To buttress his submissions, Dr. Singhvi relied heavily upon the reports of the Parliamentary Standing Committees which were looking into the problems of the power sector from time to time. Thus, the 37th Parliamentary Standing Committee Report on Stre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that against total stressed assets of 66,000 MWs in the private sector, stressed assets in the public sector amount to nil. Lack of PPAs being entered into was another cause of concern. Out of the total stressed capacity of 40,130 MWs identified in the 37th Parliamentary Standing Committee Report, PPAs have been executed only for the capacity of 17,708 MWs, as a result of which long term commitments qua fuel supply etc. are lacking. According to him, the impact of the RBI Circular was directly focused upon by the 40th Parliamentary Standing Committee Report. The 40th Parliamentary Standing Committee has analysed the suitability and impact of the impugned RBI Circular after consultation with the RBI, major banks, and financial institutions as well as the power sector associations. Key observations in the Report are: "(a) As per Department of Financial Services, Ministry of Finance, "one size fits all" approach of the RBI is erroneous. (b) Lenders like the Rural Electrification Corporation and the State Bank of India have submitted that implementing an optimal solution is impossible within the 180-day time period specified by the impugned RBI Circular. The State Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any solution to the problem is possible, in the light of observations made by the Thirty-Seventh Report of Standing Committee on Energy presented to Lok Sabha on 7.3.2018 with regard to stressed/non-performing assets in electricity sector. Though, we could not go through the report, our attention was specifically drawn to some observations in Part-II of the report, which reads thus: "The Committee are of the considered view that providing finances, though vital, to the project is only one of the several factors essential for the commissioning of the project. As of now, commissioned plants worth of thousands of Mws are under severe financial stress and are currently under SMA-1/2 stage or on the brink of becoming NPA. This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc. These projects were commissioned on the basis of national need/ demand of electricity, availability of all other essentials required in this regard. However, due to unforeseen circumstances, these plants are suffering from cash flows, credit rating, interest servicing etc. Hence, simply applying the RBI guidelines mechanically by the banks, financial institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 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." 7. Dr. Singhvi then referred to the Report dated 12.11.2018 of the High Level Committee so constituted. This Report made various recommendations. It stated: "1. Linkage coal may be allowed to be used against short term PPAs and power be sold through Discovery of Efficient Energy Price (DEEP) portal following a transparent bidding process. 2. A nodal agency may be designated which may invite bids for procurement of bulk power for medium term for 3 to 5 years in appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even a lender whose stake is only 1 per cent can stall a resolution process de hors the Insolvency Code make the circular manifestly arbitrary and violative of Article 14 on this score as well. 8. Apart from the aforesaid submissions, Dr. Singhvi referred in great detail to the relevant sections of the Banking Regulation Act and the RBI Act, and argued that the impugned circular was ultra vires the provisions of those Acts. According to him, Section 35A and Section 35AB of the Banking Regulation Act cannot possibly be the source of power for the impugned circular. Section 35A was introduced by an Amendment Act of 1956 and cannot, therefore, be used to empower the RBI to relegate companies to insolvency under the Insolvency Code as it did not exist at the time, or to give directions for resolution of stressed assets. He strongly referred to and relied upon Indian Banks' Association v. Devkala Consultancy Service, (2004) 11 SCC 1 ["Indian Banks' Association"] for the proposition that the RBI's functions under Section 35A are confined to the boundaries of the RBI Act and the Banking Regulation Act and not to other statutes, such as the Insolvency Code. He also argued that Sections 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary in which capital infrastructure investments take place and which consequently require long periods for resolution. They have also argued with various nuances of their own as to how the RBI circular is both arbitrary and ultra vires the Banking Regulation Act and the RBI Act. 10. Shri Rakesh Dwivedi, learned Senior Advocate appearing on behalf of the RBI, has taken us through various provisions of the RBI Act and Banking Regulation Act and has impressed upon us the fact that the regulatory regime laid down in these Acts must be construed broadly, being in public interest, in the interest of banking policy, and above all, in the interest of depositors. The RBI Act and the Insolvency Code are intricately related to the operation of the credit system of the country, and must therefore, be given an expansive interpretation. According to the learned Senior Advocate, the RBI Circular is only an attempt to tell banks that insofar as huge debts over INR 2000 crore are concerned, they will be given a reasonable period of six months within which to either resolve stress assets or otherwise, if they cannot do so, would only then have to move under the Insolvency Code. According to him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There is adequate guiding principle and there is no manifest arbitrariness in any of the aforesaid provisions. Further, there is no question of excessive delegation of power either, as guidance can be obtained from the Preamble of the Banking Regulation Act together with its provisions. Insofar as the RBI Circular is concerned, he argued that it is traceable to four sources of power, namely, Sections 21, 35A, 35AA and 35AB of the Banking Regulation Act. Insofar as non-banking financial companies are concerned, it is traceable to Section 45L of the RBI Act. According to the learned Senior Advocate, a general circular of this kind can certainly be issued in public interest and in the interest of the national economy. Any restrictive reading of any of these provisions will only do harm to the economy of the country as a whole. Broadly read, therefore, the RBI Circular cannot be said to be ultra vires. 11. Shri Tushar Mehta, learned Solicitor General for India, confined his submissions to the constitutional validity of Sections 35AA and 35AB of the Banking Regulation Act, and the validity of the Central Government circular dated 05.05.2017. According to the learned Solicitor General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g accounts for resolution under IBC. In particular, the IAC recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than Rs. 5000 crore, with 60% or more classified as non-performing by banks as of March 31, 2016. The IAC noted that under the recommended criterion, 12 accounts totaling about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under IBC. 4. As regards the other non-performing accounts which do not qualify under the above criteria, the IAC recommended that banks should finalise a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC. 5. The Reserve Bank, based on the recommendations of the IAC, will accordingly be issuing directions to banks to file for insolvency proceedings under the IBC in respect of the identified accounts. Such cases will be accorded priority by the National Company Law Tribunal (NCLT). 6. The details of the resolution framework in regard to the other non-performing accounts will be released in the coming days." 13. At t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce issued a notification dated 05.05.2017 under Section 35AA as follows: "MINISTRY OF FINANCE (Department of Financial Services) ORDER New Delhi, the 5th May, 2017 S.O. 1435(E).―In exercise of the powers conferred by Section 35AA of the Banking Regulation Act, 1949 (10 of 1949), the Central Government hereby authorises the Reserve Bank of India to issue such directions to any banking company or banking companies which may be considered necessary to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016." This happened to be on the very next day on which the Banking Regulation (Amendment) Ordinance, 2017 introduced Sections 35AA and 35AB as amendments to the Banking Regulation Act. A Press Note of the Ministry of Finance of 05.05.2017 explains the genesis of the Ordinance thus: "Press Information Bureau Government of India Ministry of Finance 05-May-2017 The promulgation of Banking Regulation (Amendment) Ordinance, 2017 will lead to effective resolution of stressed assets, particularly in consortium or multiple banking arrangements. The Ordinance enables the Union Government to authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action; NOW, THEREFORE, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, the President is pleased to promulgate the following Ordinance: 1. (1) This Ordinance may be called the Banking Regulation (Amendment) Ordinance, 2017. (2) It shall come into force at once. 2. In the Banking Regulation Act, 1949, after section 35A, the following sections shall be inserted, namely: '35AA. The Central Government may by order authorise 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. Explanation. - For the purposes of this section, "default" has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016. 35AB. (1) Without prejudice to the provisions of section 35A, the Reserve Bank may, from time to time, issue directions to the banking companies for resolution of stressed assets. (2) The Reserve Bank may spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xx xxx [25th August, 2017] 2. In the Banking Regulation Act, 1949 (hereinafter referred to as the principal Act), after section 35A, the following sections shall be inserted, namely:- '35AA. The Central Government may, by order, authorise 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. Explanation.-For the purposes of this section, "default" has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016. 35AB. (1) Without prejudice to the provisions of section 35A, the Reserve Bank may, from time to time, issue directions to any banking company or banking companies for resolution of stressed assets. (2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise any banking company or banking companies on resolution of stressed assets'. xxx xxx xxx" CONSTITUTIONAL VALIDITY 16. The petitioners have argued that the aforesaid Ordinance and Amendment Act are unconstitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground of challenge under Article 14. The test of manifest arbitrariness, therefore, as laid down in the aforesaid judgments would apply to invalidate legislation as well as subordinate legislation under Article 14. Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14." Short of throwing the mantra of manifest arbitrariness at us, none of the petitioners have been able to point out as to how either of these provisions is manifestly arbitrary. They are not excessive in any way nor do they suffer from want of any guiding principle. As a matter of fact, these amendments are in the nature of amendments which confer regulatory powers upon the RBI to carry out its functions under the Banking Regulation Act, and are not different in quality from any of the Sections which have already conferred such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the kind mentioned in Section 3 was upheld before the Constitution in a number of decisions of their Lordships of the Privy Council, vide Russell v. Queen [7 AC 829], Hodge v. Queen [9 AC 117] and Shannon v. Lower Mainland Dairy Products Board [1938 AC 708] and since the coming into force of the Constitution delegation of this character has been upheld in a number of decisions of this Court on principles enunciated by the majority in the Delhi Laws Act case [1951 SCR 747]. As already pointed out, the preamble and the body of the sections sufficiently formulate the legislative policy and the ambit and character of the Act is such that the details of that policy can only be worked out by delegating them to a subordinate authority within the framework of that policy. Mr. Umrigar could not very seriously press the question of the invalidity of Section 3 of the Act and it is unnecessary therefore to consider this question in greater detail." Similarly, in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Assistant Commissioner of Sales Tax and Ors., this Court observed: "13. It may be stated at the outset that the growth of the legislative powers of the Executive is a significant de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation. It must necessarily delegate the working out of details to the Executive or any other agency. But there is danger inherent in such a process of delegation. An over-burdened Legislature or one controlled by a powerful Executive may unduly overstep the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the Executive; it may confer an arbitrary power on the Executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of clause 3 of the Cotton Textile (Control of Movement) Order, 1948 promulgated by the Central Government under Section 3 of the Essential Supplies (Temporary Powers) Act, 1946. While upholding the validity of the impugned clause, this Court observed that 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, and where the Legislature has laid down such a principle in the Act and that principle is the maintenance or increase in supply of essential commodities and of securing equitable distribution and availability at given prices, the exercise of the power was valid." The Statement of Objects and Reasons of the Banking Regulation Act, relevant for our purpose, is as follows: "STATEMENT OF OBJECTS AND REASONS The provisions of law relating to banking companies at present form a subsidiary portion of the general law applicable to companies and are contained in Part XA of the Indian Companies Act, 1913. These provisions, which were first introduced in 1936, and which have undergone two subsequent modifications, have proved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 delegated to it by these provisions. Consequently, the plea of constitutional validity fails. ULTRA VIRES 18. Shri Dwivedi referred to and relied upon Sections 21, 35A, 35AA, and 35AB in order to sustain the validity of the impugned circular. Dr. Singhvi has argued that Section 35A cannot possibly be relied upon for the reason that it is an old provision, introduced in 1956. Whether or not to invoke the Insolvency Code was certainly not in Parliament's contemplation when it enacted Section 35A, and for this reason, Section 35A cannot possibly be looked at as a source of power authorising the RBI to issue the impugned circular. 19. Dr. Singhvi's argument raises an interesting question as to the "ongoing" interpretation of a statute. Generally, statutes are recognised as Acts of Parliament that should be deemed to be "always speaking". Thus, in Senior Electric Inspector v. Laxminarayan Chopra, (1962) 3 SCR 146, this Court held that the expression "telegraph line" mentioned in the Indian Telegraph Act, 1885, is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lege 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 necessary, to have regard to the state of affairs existing, and known by Parliament to be existing, at the time. It is a fair presumption that Parliament's policy or intention is directed to that state of affairs. Leaving aside cases of omission by inadvertence, this being not such a case, when a new state of affairs, or a fresh set of facts bearing on policy, comes into existence, the courts have to consider whether they fall within the Parliamentary intention. They may be held to do so, if they fall within the same genus of facts as those to which the expressed policy has been formulated. They may also be held to do so if there can be detected a clear purpose in the legislation which can only be fulfilled if the extension is made. How liberally these principles may be applied must depend upon the nature of the enactment, and the strictness or otherwise of the words in which it has been expressed. The courts should be less willing to extend expressed meanings if it is clear that the Act in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 the proposition that an Act is always speaking is often taken to mean that a statutory provision has to be considered first and foremost as a norm of the current legal system, whence it takes its force, rather than just as a product of an historically defined Parliamentary assembly. It has a legal existence independently of the historical contingencies of its promulgation, and accordingly should be interpreted in the light of its place within the system of legal norms currently in force. Such an approach takes account of the viewpoint of the ordinary legal interpreter of today, who expects to apply ordinary current meanings to legal texts, rather than to embark on research into linguistic, cultural and political history, unless he is specifically put on notice that the latter approach is required." (My emphasis.) In other words, it is generally permissible and indeed necessary to take into account the place of the statutory provision in controversy in the broad contex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in' 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 road in repair. To require the removal of ice and snow would not be to apply that concept in accordance with modern standards (such as requiring a metalled surface instead of gravel) but would be using the word 'maintain' to express a broader concept than Parliament intended. Such a change would not be in accordance with the meaning of the statute. Likewise it seems to me in this case that an extension of the concept of 'premises in such a state as to be prejudicial to health' to the absence of facilities, as such, is an illegitimate extension of the statutory meaning. My Lords, it seems to me that the temptation to make such an extension should be resisted for much the same reasons as your Lordships in Southwark London Borough Council v Mills [1999] 4 All ER 449, [1999] 3 WLR 939 refused to extend the common law of nuisance and quiet enjoyment so as to require landlords to install soundproofing. Parliament has dealt expressly with the obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 any other statute. 38. Section 35-A of the Banking Regulation Act empowers the Reserve Bank of India to issue directions in relation to matters specified under Section 35-A and not for any other purpose. The contention of the appellants to the effect that rate of interest had been enhanced by them pursuant to or in furtherance of the directions issued by the Reserve Bank of India must be held to be self-contradictory inasmuch as according to them the Reserve Bank of India fixes only the minimum rate of interest leaving a determination thereof in the case of each individual borrower upon the bank concerned. If the matter relating to increase in the rate of the interest was within the power of the appellants, we fail to understand as to why the Reserve Bank of India was approached at all. The same being not permissible under the Act, any approval given by the Reserve Bank of India for the satisfaction of the members of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unded 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 it is necessary or expedient in the public interest or in the interest of depositors or banking policy so to do, to determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular and when the policy has been so determined it has a binding effect. In particular, the Reserve Bank of India may give directions as to the rate of interest and other terms and conditions on which advances or other financial accommodation may be made. Such directions are also binding on every banking company. Section 35-A also empowers the Reserve Bank of India in the public interest or in the interest of banking policy or in the interests of depositors (and so on) to issue directions generally or in particular which shall be binding. With effect from 15-2-1984 Section 21-A has been inserted in the Act which takes away power of the court to reopen a transaction bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xx (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 directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. The Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 shall be the Official Liquidator in any proceedings concerning winding up of a banking company." xxx xxx xxx "38. The BR Act, 1949 basically seeks to regulate banking business. In the cases in hand we are not concerned with the definition of banking but with what constitutes "banking business". Thus, the said BR Act, 1949 is an open-ended Act. It empowers RBI (regulator and policy framer in matter of advances and capital adequacy norms) to develop a healthy secondary market, by allowing banks inter se to deal in NPAs in order to clean the balance sheets of the banks which guideline/policy falls under Section 6(1)(a) read with Section 6(1)(n). Therefore, it cannot be said that assignment of debts/NPAs is not an activity permissible under the BR Act, 1949. Thus, accepting deposits and lending by itself is not enough to constitute the "business of banking". The dependence of commerce on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 undertakings of banking companies in certain cases.-(1) If, upon receipt of a report from the Reserve Bank, the Central Government is satisfied that a banking company- (a) has, on more than one occasion, failed to comply with the directions given to it in writing under Section 21 or Section 35-A, in so far as such directions relate to banking policy, or (b) is being managed in a manner detrimental to the interests of its depositors,- and that- (i) in the interests of the depositors of such banking company, or (ii) in the interest of banking policy, or (iii) for the better provision of credit generally or of credit to any particular section of the community or in any particular area; it is necessary to acquire the undertaking of such banking company, the Central Government may, after such consultation with the Reserve Bank as it thinks fit, by notified ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 may be specified. xxx xxx xxx" The power to remove difficulties is also vested in the Central Government under Section 55A of the Act, which reads as follows: "55A. Power to remove difficulties.-If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order, as occasion requires, do anything (not inconsistent with the provisions of this Act) which appears to it to be necessary for the purpose of removing the difficulty: Provided that no such power shall be exercised after the expiry of a period of three years from the commencement of Section 20 of the Banking Laws (Amendment) Act, 1968." A conspectus of all these provisions shows that the Banking Regulation Act specifies that the Central Government is either to exercise powers along with the RBI or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I 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. Shri Dwivedi then argued relying upon the Finance Minister's speech that Section 35AA was really enacted by way of abundant caution inasmuch as there was a doubt as to whether such power could be exercised generally or otherwise. He relied, in particular, on the following statement in the speech of the Finance Minister, Shri Arun Jaitley, while moving the Bill which introduced Sections 35AA and 35AB into the Banking Regulation Act. The Finance Minister stated: "This issue was discussed at length. There were two views that the general power may not include this power. One view was exactly what you are saying. The other view was this. It is a very short amendment. Therefore, to obviate any controversy, the RBI will direct the consortium of banks to go and move an IBC insolvency petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 context of an Act may well indicate that wide or general words should be given a restrictive meaning." [Halsbury 4th Edn., Vol. 44 p. 874]" This contention of Shri Dwivedi must, therefore, fail. 34. Yet another contention of Shri Dwivedi is that concurrent powers have been given to the RBI on a combined reading of Sections 21, 35A, 35AA, and 35AB. Interestingly, when concurrent powers are given to the same or to two different authorities, the Banking Regulation Act expressly says so. Thus, Section 35(1) of the Act is an example of concurrent power given to the RBI as well as to the Central Government. Section 35(1) of the Act reads as follows: "35. Inspection.-(1) Notwithstanding anything to the contrary contained in Section 235 of the Companies Act, 1956, the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s "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 under Section 35A. 36. It is significant that the power to issue directions given by Section 35AB is without prejudice only to the provisions of Section 35A, i.e., it has to be read in conjunction with Section 35A. What is of even greater significance is that Section 35AB is not without prejudice to the provisions contained in Section 35AA. This being so, it is clear that the power under Section 35AB, read with Section 35A, is to be exercised separately from the power conferred by Section 35AA. 37. All the learned counsel appearing on both sides referred to external aids to construe the statute at hand. In Eera (through Dr. Manjula Krippendorf) v. State (NCT of Delhi) and Anr., (2017) 15 SCC 133, Nariman, J. referred to what may be called the theory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 comes to issuing directions in respect of stressed assets, which directions are directions other than resolving this problem under the Insolvency Code, such power falls within Section 35A read with Section 35AB. This also becomes clear from the fact that Section 35AB(2) enables the RBI to specify one or more authorities or committees to advise any banking company on resolution of stressed assets. This advice is obviously de hors the Insolvency Code, as once an application is made under the Insolvency Code, such advice would be wholly redundant, as the Insolvency Code provisions would then take over and have to be followed. 39. When one section of a statute grants gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 resolution process under the Insolvency Code under Sections 21, 35A, and 35AB of the Banking Regulation Act, would obviate the necessity of a Central Government authorisation to do so. Absent the Central Government authorisation under Section 35AA, it is clear that the RBI would have no such power. 41. Having grounded the power to issue directions to banking companies so far as the Insolvency Code is concerned, in Section 35AA, what is important to note is that the Section enables the Central Government to authorise the RBI to issue such directions in respect of "a default". Default, in the explanation to Section 35AA, has the same meaning assigned to it under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 1. archaic specific medicine. 2. specific aspect."
Black's Law Dictionary also defines the word "specific" as follows:
"specific, adj. 1. Of, relating to, or designating a particular or defined thing; explicit X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or under any scheme or arrangement by whatever name called, monies in lumpsum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,- (a) agricultural operations; or (aa) industrial activity; or Explanation.-For the purposes of this clause, ''industrial activity'' means any activity specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays 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 impugned circular is concerned. It is very difficult to segregate the non-banking financial institutions from banks so as to make the circular applicable to them even if it is ultra vires insofar as banks are concerned. For these reasons also, the impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors ..... X X X X Extracts X X X X X X X X Extracts X X X X
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