2018 (10) TMI 981 - HC - Insolvency and Bankruptcy

Action of RBI in selecting the petitioner as one of the borrowers and issuing instructions to the banks to make a reference under the IBC - whether is arbitrary, unreasonable and falls foul of Article 14 of the Constitution of India? - Held that - This Court is not called upon to evaluate the criteria adopted by the RBI on merits. The scope of judicial review is limited and unless it is established that the same is arbitrary, unreasonable, capricious or mala fide, no interference by this Court would be warranted. Clearly, none of the aforesaid grounds are established. The criteria adopted by the RBI is based on expert advice and within the scope of their powers. In view of the above, no interference with the direction of the RBI is warranted. It is also apparent that the criteria adopted by RBI, for selecting the accounts to be referred for resolution under the IBC, is an objective criteria based on rational basis. The petitioner s contention that inclusion of its name in the second list is arbitrary, is wholly unsustainable. Mr. Vashishth contention that there were several other accounts meeting the same criteria, but had not been included in the list of accounts to be referred under the IBC. This contention is seriously disputed by RBI. However, even if it is accepted that there are other accounts qualifying the criteria as adopted by the RBI but have not been included in the list, no interference in these proceedings would be warranted. Clearly, all accounts cannot be referred to the IBC in one trench, as that would tend to clog the docket of NCLT. The RBI retains full discretion as to which account is to be included in which trench and this Court finds no reason to interfere with the exercise of such discretion. petition dismissed.

Summary

Issues Involved:
1. Impugning the RBI list including the petitioner for insolvency proceedings under the IBC.
2. Challenging Clause 13 of the RBI Circular dated 12.02.2018.
3. Allegation of discrimination and violation of Article 14 of the Constitution of India.
4. Evaluation of RBI's criteria for referring accounts to the IBC.

Detailed Analysis:

1. Impugning the RBI List Including the Petitioner for Insolvency Proceedings Under the IBC:
The petitioner challenged the inclusion of its name in the RBI list directing banks to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The petitioner argued that this action disabled it from pursuing a resolution plan under the RBI Circular dated 12.02.2018. The Court noted that the petitioner had defaulted on its loans, resulting in its classification as a Non-Performing Asset (NPA). Consequently, the RBI directed the State Bank of India (SBI) to initiate proceedings under the IBC.

2. Challenging Clause 13 of the RBI Circular Dated 12.02.2018:
The petitioner contested Clause 13 of the RBI Circular, which excluded borrowers with specific RBI instructions from the resolution plan framework. The petitioner sought exclusion from this clause, arguing that it was discriminatory and prevented it from availing the six-month period provided to other defaulters for finalizing a resolution plan.

3. Allegation of Discrimination and Violation of Article 14 of the Constitution of India:
The petitioner claimed that the RBI's action was discriminatory and violated Article 14 of the Constitution of India. The Court examined whether the RBI's decision to select the petitioner for insolvency proceedings was arbitrary, unreasonable, or violated Article 14. The Court found that the RBI's criteria were based on expert advice and within the scope of its powers, thus not arbitrary or discriminatory.

4. Evaluation of RBI's Criteria for Referring Accounts to the IBC:
The Court reviewed the RBI's process for selecting accounts for insolvency proceedings. The RBI had constituted an Internal Advisory Committee (IAC) to identify cases for IBC reference. The IAC considered the top 500 exposures in the banking system as of 31.03.2017 and selected accounts based on specific criteria, including the extent of NPA classification and outstanding amounts. The petitioner met these criteria, justifying its inclusion in the list. The Court emphasized that judicial review of RBI's criteria is limited and found no grounds to interfere with the RBI's objective and rational decision-making process.

Conclusion:
The Court concluded that the RBI's actions were neither arbitrary nor discriminatory. The criteria for selecting accounts for insolvency proceedings were based on expert advice and rational considerations. The petitioner's inclusion in the list was justified, and the Court dismissed the petition, finding no reason to interfere with the RBI's discretion. All pending applications were also disposed of.