BS: RBI circular has one-size-fits-all approach, power firms tell SC

6 March 2019: The Reserve Bank of India’s (RBI’s) February 12, 2018 circular asking banks to move insolvency petitions against large non-performing assets (NPAs) that have not been resolved, is based on a ‘one-size-fits-all’ approach without taking into consideration factors such as the reasons for non-payment, power companies told the Supreme Court on Wednesday.

There is no distinction between the kinds of debtors, the reasons for non-payment of the debt or consideration for external factors influencing the sector, senior advocate Abhishek Manu Singhvi, appearing for one of the power companies told the court. 

The discretionary power of banks to decide whether an account would turn non-performing asset (NPA) or not had also been taken away by the RBI owing to the circular, he said.

A two-judge Bench of Justice Rohinton Fali Nariman and Justice Vineet Saran is hearing a bunch of petitions moved by power, sugar, and shipping companies challenging the RBI’s circular. 
On February 12 last year, the RBI had asked banks and other lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against them in the National Company Law Tribunal (NCLT).  

Citing that in their case, the supply side as well as the demand side was under the watchful eyes of regulators, the power companies on Wednesday said that the sector should have been exempted from the RBI’s diktat.

“On the supply side, there is a shortage of coal. How do I get coal? And if I get coal, whether I will get linkages or not is another question. On the demand side, I cannot increase my tariff. Even if I approach the regulator to seek permission to do the same, it would take at least 2-3 years,” the counsel appearing for one of the power companies told the court.

Even within the power sector, there was a huge difference between the condition of public and private companies as the dues of the latter was not cleared on time by states and power distribution companies (discom) on time, he said.

The apex court is scheduled to resume hearing the companies on Thursday. It is hearing these petitions by dividing them into three categories. There are some companies that have challenged the validity of the Insolvency and Bankruptcy Code. The second group of companies have challenged the constitutional validity of the circular, and the third group, which consists mostly of power companies, have sought temporary relief from the circular only for themselves.

The Business Standard reported

Categories: General News, India Bankruptcy, Legal update

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