2018 (3) TMI 557 - HC - Indian Laws

Change in policy by RBI - Formation of Joint Lenders Forum (JLF) and adoption of Corrective Action Plan (CAP) - Resolution and restructuring of the corporate debt - Held that - For operationalizing the framework Petitioner in the instant Petition, is virtually seeking a direction against the JLF not to proceed with the matter before the adjudicating authority under the IBC and to virtually disregard the directives. In fact, those directives issued to the JLF and initiation of proceedings under IBC before the adjudicating authority is a subject matter of grievance by the Petitioner company. It is the Petitioner company, as recorded above, which has not brought in the upfront contribution, mandated under the directives of the RBI and as instructed by JLF. One of the CRAs appointed by the RBI does not find the residual debt of the Petitioner to be investment grade and thirdly, all the lenders have not signed the MRA. Considering these factors, it is difficult to accept the contention of the Petitioner that the MRA has been operationalized. In view of the policy declared by the RBI on 12 February 2018, since the scheme itself has been withdrawn, any direction for implementation and enforcement of the said scheme, cannot be issued. This court cannot be unmindful of the fact that the RBI has withdrawn all the schemes relating to the financial restructuring, by declaring new financial policy on 12 February 2018. The new policy appears to have been declared by RBI for the reason that the NPA, in the Nationalized banks, have touched almost 8 lakhs crores. In the instant matter also, the financial exposure of the Petitioner company is more than ₹ 4000 crores, as has been recorded above, the financial policies and the financial matters, falling within the exclusive jurisdiction of the RBI, need not be scrutinized by the Court, since the Court do not possess required expertize in the financial and economic field.

Summary

Issues Involved:
1. Retrospective application of RBI's internal communications.
2. Stalling implementation of the Master Restructuring Agreement (MRA).
3. RBI's failure to respond to representations by the petitioner.
4. Discrediting the credit opinion obtained from SMERA.
5. Appointment of a third Credit Rating Agency (CRA) by RBI.
6. RBI's directives to initiate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

Issue-Wise Detailed Analysis:

1. Retrospective Application of RBI's Internal Communications:
The petitioner challenged the retrospective application of RBI's internal communications dated 29 September 2017 and 30 November 2017. The court noted that the RBI's directions were part of its regulatory framework for revitalizing distressed assets and ensuring fair recovery for lenders. The RBI's decision to assign CRAs and make payments to them was within its regulatory purview and not subject to retrospective application.

2. Stalling Implementation of the Master Restructuring Agreement (MRA):
The petitioner contended that the MRA, executed by 10 out of 12 lenders, should be implemented. However, the court found that the MRA had not been fully implemented as not all conditions were met by the deadline of 13 December 2017. Specifically, the promoters' contribution was incomplete, and the credit rating by the third CRA appointed by RBI was adverse. Thus, the RBI's decision to stall the MRA was justified.

3. RBI's Failure to Respond to Representations by the Petitioner:
The petitioner argued that RBI failed to respond to their representations dated 15 December 2017, 16 December 2017, 22 December 2017, and 26 December 2017. The court observed that the RBI had communicated its position through various correspondences and had provided adequate reasons for its decisions. Therefore, the RBI's actions were not arbitrary or unreasonable.

4. Discrediting the Credit Opinion Obtained from SMERA:
The petitioner claimed that RBI unjustly discredited the credit opinion from SMERA, an accredited CRA. The court upheld RBI's decision, noting that RBI, as the banking regulatory authority, has the expertise to evaluate credit ratings. The RBI's rejection of SMERA's rating in favor of a third CRA's adverse rating was within its regulatory discretion and not subject to judicial review.

5. Appointment of a Third Credit Rating Agency (CRA) by RBI:
The petitioner objected to the appointment of a third CRA by RBI, arguing that SBI had already appointed two CRAs (CARE and SMERA). The court found that RBI's decision to appoint a third CRA was in line with its regulatory framework to ensure unbiased and accurate credit ratings. The appointment was not retrospective but part of RBI's ongoing regulatory measures.

6. RBI's Directives to Initiate Insolvency Proceedings Under the IBC:
The petitioner sought interim relief to restrain the initiation of insolvency proceedings under the IBC. The court noted that the RBI's directives were based on the failure to meet the conditions for the resolution plan by the deadline. The RBI's new policy, effective from 12 February 2018, mandated insolvency proceedings for unresolved stressed assets. The court emphasized that economic policies and financial regulations fall within the RBI's expertise and are not subject to judicial interference.

Conclusion:
The court dismissed the writ petition, concluding that the RBI's actions were within its regulatory authority and expertise. The RBI's directives, including the appointment of CRAs and initiation of insolvency proceedings under the IBC, were justified based on the petitioner's failure to meet the required conditions for the resolution plan. The court reiterated that judicial review should not interfere with economic policies and regulatory decisions made by expert bodies like the RBI.