2018 (8) TMI 1600 - HC - Indian Laws

Vires of of Section 35AA and Section 35AB of the Banking Regulation Act, 1949 - interim stay of the implementation of the impugned circular dated 12.02.2018 - Held that - I have been unable to persuade myself to find the petitioners entitled to the grant of interim relief bearing in mind factors such as the state of the banking sector, rising status of NPA s, declining profitability of public sector banks, steady erosion of profits, majority of banks not even meeting the minimum capital requirements, the huge infusion of funds by the Union Government to shore up the banking system as a whole, the experience of RBI of existing schemes not being sufficiently strong to deal with resolution of stressed assets with expediency, all of which appear to have acted as the backdrop in which the impugned directive came to be issued. The amendments to the 1934 and 1949 Acts, the express authorization in favour of the RBI by the Union Government, viewed cumulatively, indicate the intent to sufficiently empower RBI to deal with the subject of stressed assets. In such situations, the Court must necessarily be circumspect and tread with caution keeping the principles of judicial deference and institutional competence in mind. Ultimately the question of weighing competing economic factors, choice of fiscal measures liable to be adopted must not be interfered with lightly unless established to be palpably arbitrary. The petitioners have failed to establish a case for the grant of interim relief at this stage - Interim relief, at this stage, need not be granted.

Issues Involved:
1. Constitutionality of Sections 35AA and 35AB of the Banking Regulation Act, 1949.
2. Validity of the RBI Circular dated 12.02.2018.
3. Sector-specific issues faced by the power sector.
4. Interim relief against the implementation of the RBI Circular.
5. Maintainability of the writ petitions filed by associations.

Issue-Wise Detailed Analysis:

1. Constitutionality of Sections 35AA and 35AB of the Banking Regulation Act, 1949:
The petitioners challenged the constitutionality of Sections 35AA and 35AB of the Banking Regulation Act, 1949. However, the court noted that no serious submissions were made regarding this challenge during the proceedings. The court proceeded on the basis that the power of the RBI to issue the impugned directions was neither doubted nor seriously challenged at this stage.

2. Validity of the RBI Circular dated 12.02.2018:
The RBI issued the circular in exercise of its powers under Sections 35A, 35AA, and 35AB of the Banking Regulation Act, 1949, and Section 45L of the Reserve Bank of India Act, 1934. The circular mandated banks to initiate insolvency resolution processes under the Insolvency and Bankruptcy Code, 2016 (IBC) if a resolution plan was not implemented within 180 days from the reference date. The court noted that the circular aimed to address the high levels of stressed assets in the banking system and emphasized the need for expeditious resolution. The court found that the RBI's actions were justified given the severe financial stress in the banking sector and the need for timely resolution of stressed assets.

3. Sector-specific issues faced by the power sector:
The petitioners argued that the power sector faced unique challenges that warranted a separate framework for resolution of stressed assets. The court acknowledged the specific issues faced by the power sector, including non-availability of fuel, cancellation of coal blocks, lack of Power Purchase Agreements (PPAs), and regulatory disputes. The court noted that the Standing Committee on Energy had recognized these sector-specific issues and recommended additional time for resolution. However, the court found that the RBI's circular was sector-agnostic and aimed at addressing the broader issue of stressed assets in the banking system.

4. Interim relief against the implementation of the RBI Circular:
The petitioners sought interim relief to stay the implementation of the RBI circular. The court considered the submissions of the parties and the recommendations of the Standing Committee on Energy. The court observed that the power sector faced significant financial stress and that the RBI's circular mandated a strict timeline for resolution. The court directed the High Level Empowered Committee to submit its report within two months and invited a senior representative of the RBI to be a member of the committee. The court declined to grant interim relief but allowed the petitioners to apply for urgent relief if circumstances demanded.

5. Maintainability of the writ petitions filed by associations:
The court addressed the issue of maintainability of the writ petitions filed by the Independent Power Producers Association of India (IPPA) and the Association of Power Producers (APP). The court found that the associations were authorized to initiate litigation on behalf of their members and that the petitions raised collective issues affecting the power sector. The court overruled the objections regarding maintainability and territorial jurisdiction, noting that some members of the associations had interests in the State of Uttar Pradesh.

Conclusion:
The court declined to grant interim relief against the implementation of the RBI circular and directed the High Level Empowered Committee to submit its report within two months. The court allowed the petitioners to apply for urgent relief if needed and emphasized the need for a consultative process between the Central Government and the RBI to address sector-specific issues. The court recognized the unique challenges faced by the power sector but upheld the validity of the RBI's circular aimed at resolving stressed assets in the banking system.

← Previous Next →