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TMI Blog2018 (3) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 29 September 2017 and 30 November 2017; (b) stalling the implementation of final executed Master Restructuring Agreement (MRA) dated 12 December 2017, executed by 10 out of 12 lenders (which corresponds to approximately 91% of creditors by value); (c) failing to consider or respond to Petitioner No.1's representations dated 15 December 2017, 16 December 2017, 22 December 2017 and 26 December 2017 and; (d) not considering and discrediting the credit opinion obtained from SMERA, which is one of the accredited Credit Rating Agency (CRA), in terms of its circular dated 13 June 2017 and directing Respondent No.2State Bank of India (SBI) to appoint third CRA i.e. India Ratings and Research Private Limited (IRRPL) on 7 December 2017, for the purpose of obtaining fresh credit rating by Respondent No.2SBI, knowing well that the deadline is 13 December 2017. The Petitioner has also prayed for grant of interim relief, restraining Respondent Nos. 2 to 13 from initiating or prosecuting any proceedings against Petitioner No.1JNIL under the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal, Mumbai, pursuant to the directives issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng regard to the deadline of 13 December 2017 as prescribed by the RBI in its circular dated 13 June 2017, appointed two accredited CRAs i.e. CARE and SMERA on 21 September 2017 and 28 September 2017. 8. The RBI issued directions on 29 September 2017 and decided that it would assign two CRAs for each proposal and make payment to such CRAs. In paragraph Nos. 2 and 3 of the circular dated 29 September 2017, it is recorded thus "2. Specifically, it was advised that any resolution plan finalized outside Insolvency and Bankruptcy Code, 2016 (IBC), in respect of the accounts mentioned in the letter dated August 28, 2017 will be subject to a rating requirement i.e., in all resolution plans where the lenders continue to hold a portion of the debt, the residual debt must be rated as investment grade by two external credit rating agencies (CRAs) accredited by the Reserve Bank for bank loan ratings. 3. In this context, it is further advised that the assignment of CRAs for the resolution plans, and the payments to the CRAs for the same, will be made by the Reserve Bank of India. The lead bank should forward the list of the accounts for which resolution plans outside IBC are being consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed for minimum upfront requirement of promoters contribution of Rs. 100.29 crores in the form of part cash of Rs. 58.00 crores and the remaining part from conversion of existing unsecured loan into equity. It is recorded in the minutes of the meeting that the RBI in its communication to SBI on 30 November 2017, has informed that in terms of their earlier letter dated 28 August 2017, the resolution plan in respect of identified entities need to be finalized and implemented by 13 December 2017. In this context, the plan shall be considered, finalized and implemented if the following milestones are met before the deadline of 13 December 2017 (i) the required credit opinions (ICE) for the resolution plans are available from two CRAs. (ii) the Master Restructuring Agreement (MRA) has been signed by all the parties and; (iii) all the preconditions specified in the respective RBI guidelines, relating to the specific resolution scheme being adopted have been complied before the deadline. In case of generic restructuring, these will include the requirements relating to the promoters' contribution to be brought upfront and personal guarantees to be provided by the promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation: For the purposes of this section "default" has the same meaning assigned to it in Clause 12 of Section 3 of the Insolvency and Bankruptcy Code, 2016. 35AB. (1) Without prejudice to the provisions of section 35A, the Reserve Bank may, from time to time, issue directions to the banking companies for resolution of stressed assets. (2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets." 14 The RBI on 5 May 2017, issued circular instructing the lenders to scrupulously adhere to the timeline prescribed in the circular to facilitate the timely decision making. It is prescribed in the circular that henceforth the decision agreed upon by minimum 60% of creditors by value and 50% of the creditors by number in JLF, would be considered as the basis for deciding the CAP and will be binding on all lenders, subject to exit (by substitution) option available in the framework. 15 The RBI, on 22 May 2017, issued a press release setting out the action plan to implement the Banking Regulation (Amendment) Ordinance, 2017. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the credit rating of the Petitionercompany to be adverse. The Petitioner contends that the decision by the RBI to assign the job of credit rating to the agency appointed by the RBI, was after the SBI entered into an agreement with SMERA and as such, the decision of RBI cannot be operated retrospectively. It is also contended that it is intriguing as to how the RBI accepts the credit rating by CARE whereas, doubt the rating by SMERA, though the said agency is accredited by the RBI. The request of SBI for ratification of appointment of CARE and SMERA made on 16 October 2017, has not been accepted by the RBI. The request made by the SBI for grant of dispensation in respect of promoters contribution of Rs. 15.00 crore as upfront and balance Rs. 85.29 crores latest by 31 March 2019, has also not been accepted by the RBI. The RBI on 14 November 2017, communicated the SBI that on careful examination of the request made, the RBI regretted and express inability to accede to the request in respect of granting dispensation. On 30 November 2017, the Petitioner expressed willingness to contribute in the form of share application money. However, the infusion of the contribution was also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tands discontinued. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework. 19. The list of circulars/directions guidelines subsumed in this circular and thereby stand repealed from the date of this circular is given in Annex3." 17. The policy framed earlier by the RBI, in respect of the resolution of stressed assets, has been completely revised. It is the contention of the Petitioner that since the MRA has been implemented, the revised policy guidelines dated 12 February 2018, would not apply. The contentions raised by the Petitioners are devoid of substance. All the three conditionalities prescribed by the RBI have not been fulfilled by the Petitioners, those are (i) the required credit opinions (ICE) for the resolution plans available from two CRAs. It must be noted that the CRAs appointed by the RBI, in terms of its policy has not certified residual debt of the company to be investment grade. The RBI has not accepted the credit rating by SMERA. The decision of the RBI, which is a Banking Regulatory Authority having expertise, cannot be a matter of review under the writ jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017, insolvency proceedings under the provisions of IBC may be initiated before 31 December 2017 unless already initiated. In the instant matter, on 12 December 2017, the MRA was signed by 10 out of 12 lenders for implementing the debt restructuring scheme. The remaining two lenders did not exercise their right to exit in accordance with circular dated 25 February 2016. The restructuring package has not come into operation much less, it has not been implemented. 18. As has been recorded above, the three required essentials (i) the required credit opinions for the resolution plans are available from two CRAs; (ii) the master restructuring agreement signed by all the parties and; (iii) the requirements relating to the promoter's contribution to be brought upfront and personal guarantees to be provided by the promoters, have not at all been fulfilled and in view of above, the requirement in respect of the implementation of the resolution plans has not been fulfilled. The insolvency proceedings have already been initiated by the SBI in terms of the directives issued by the RBI. 19. It is contended on behalf of the RespondentRBI that, the function of the Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (354 US 457 : 1 L Ed 2d 1485 (1957) where Frankfurter, J. said in his inimitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial selfrestraint if not judicial deference to legislative Judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error the bewildering conflict of the experts, and the number of times the judges have been overruled by events selflimitation can be seen to be the path to judicial wisdom and institutional prestige and stabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the adjudicating authority. The instant petition is presented by the Corporate, objecting to the directions issued by the RBI to the SBI, which is a lead member of the JLF. The JLF is the forum of the creditors of Petitioner Company. It is the JLF, which had conducted meetings for arriving at a credit restructuring plan and for preparation of MRA. The CRAs in respect of which, an objection is raised by the Petitioner company were appointed by the JLF and as per the directions of the RBI, the another credit rating company i.e. IRRPL was appointed. It is the JLF, which has arrived at the MRA, which has not yet been operationalized. The directives issued by the RBI are binding on all the members of the JLF. The 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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