The Supreme Court on Tuesday agreed to hear the cases challenging the February 12 circular of the Reserve Bank of India which threatened to send nearly 70 companies in the power sector, sugar sector and other such industries which are at the risk of defaulting into the corporate insolvency resolution proceedings as prescribed under the Insolvency and Bankruptcy Code, according to media reports.
The apex court was hearing a transfer petition by the Reserve Bank of India which sought to transfer all the cases challenging its circular. It will hear the matter on November 11. According to media reports, the hearing on September 11 was a 10-15 minute miscellaneous hearing.
In the absence of the written order on the Supreme Court website, there was confusion over the interpretation of the order. While those representing the power sector welcomed it as a relief and interpreted the order as one which put a stay order on any insolvency proceedings to be carried out against them, others had a different view. Speaking to BloombergQuint, Shardul Shroff, executive chairman, at the law firm Shardul Amarchand Mangaldas said, "It is erroneous to conclude that the banks will not be able to approach the National Company Law Tribunal until further orders of the apex court." He added that 'unless the RBI wants to shoot a self goal' why would it seek a stay order against its own circular. Shroff also gave the disclaimer, that he may be representing the banks seeking to start insolvency proceedings against the defaulting companies.
The matter has its roots in the controversial February 12, 2018 circular of the RBI where it mandated that loan accounts above Rs 2,000 crore, that remained unresolved for more than 180 days be brought under the Insolvency and Bankruptcy Code (IBC) and taken to the National Company Law Tribunal (NCLT) for resolution. That 180-day deadline ended on August 27 even has High Courts around the country were hearing challenges to the RBI circular. In one such challenge, on August 27, the Allahabad High Court refused to stay the RBI circular. According to a report on BloombergQuint, the Allahabad High Court also did not prevent financial creditors to start insolvency proceedings against the defaulter. Financial daily Mint reported that 20 such stressed power companies had been identified.