BS: SC order will help re-ignite power sector: IPPAI

2 April 2019: Power companies will immensely benefit from the Supreme Court’s Tuesday order striking down the RBI’s February 12 circular which stated a time-bound resolution of bank loans, the Independent Power Producers Association of India (IPPAI) said.

“Definitely it is going to help the power companies as it will release the pressure of projects being referred to the NCLT (National Company Law Tribunal) for no fault of theirs. Hopefully the government and the policy makers will look up to the power sector again to find solution along with today’s relief.

“Without fuel supply agreement, a time-bound solution (like the February 12 circular) had no meaning. Now companies can plan for going forward on reviving the stuck projects with fuel and power supply agreements,” IPPAI Director General Harry Dhaul told IANS.

The Supreme Court on Tuesday struck down Reserve Bank of India’s (RBI) February 12 circular related to the resolution of the stressed assets, calling it “unconstitutional” and “ultra vires”.

Power companies such as Essar Power, GMR Energy, KSK Energy, and Rattan India Power, as well as the Association of Power Producers (APP) and the IPPAI had, in August 2018, moved the apex court, challenging the constitutional validity of the circular.

Daizy Chawla, Senior Partner, Singh & Associates, said though the judgment, by which the Supreme Court has set aside the impugned circular dated February 12, 2018 on the ground that Section 35AA of Banking Regulation Act under which it is issued is ultra vires, will be a big relief for those companies which were directly hit by the said circular.

“However, this does not mean that action against the said entities cannot be taken under the IBC (Insolvency and Bankruptcy Code). Moreover, the Hon’ble Apex Court has also not gone into the other issues or decided with respect to other issues which the power companies were emphasizing as the reasons for their stress,” she said.

Rating agency Moody’s, however, termed the Supreme Court order as being credit negative for Indian banks.

“Voiding of the February 12 circular is credit negative for Indian banks. The circular had significantly tightened stressed loan recognition and resolution for large borrowers. But, with the voiding, this may now have to be watered down.

“The resolution of stressed loans impacted by the circular will be further delayed as the process may have to be started afresh,” said Srikanth Vadlamani, Vice President, Financial Institutions Group, Moody’s Investors Service.

Private power producers had pleaded in the Supreme Court that the RBI circular would further accentuate the already existing grave problems afflicting the health of the sector while challenging the validity of the central bank’s order.

Several power companies, as well as the APP and the IPPAI, had challenged the validity of the RBI circular in various high courts seeking a stay on insolvency proceedings, arguing that the circular would push even those power assets that were close to achieving loan restructuring into insolvency.

In its arguments while challenging the circular, the APP said: “Ministry of Power’s admission that non-payment of dues (Rs 40,846 crore) and delay in recovery of amounts from discoms, majority of which are Government-owned impairs the ability of IPPs to service debt in timely manner.

“The HLEC (High Level Empowered Committee of the Power Ministry) Report also notes that delay in payments by discoms is a major stress factor.”

The Business Standard reported

Categories: General News, India Bankruptcy, Legal update

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