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TMI Blog2018 (8) TMI 1600X X X X Extracts X X X X X X X X Extracts X X X X ..... India. ORDER (Per Dilip B Bhosale, CJ) 1. The first writ petition under Article 226 of the Constitution of India, has been instituted by Independent Power Producers Association of India, for the following reliefs: "A. Issue an appropriate writ, order or direction for declaring the provisions of Section 35AA and Section 35AB of the Banking Regulation Act, 1949, as ultra vires to the Constitution of India; B. Issue a Writ of Certiorari or any other Writ, Order or Direction of like nature quashing the Order S.O. 1435(E) dated 05.05.2017 issued under Section 35AA of the Banking Regulation Act, 1949, being without the authority of law; C. Issue a Writ of Certiorari or any other Writ, Order or Direction of like nature quashing the Circular having no. DBR No. BP.BC.101/21.04.048/2017-18 dated 12.02.2018." 2. The second writ petition has been filed by Association of Power Producers ( Writ-C No. 23181 of 2018) and the third writ petition (Writ-C No. 23183 of 2018) by Prayagraj Power Generation Company Limited. The prayers made in these two writ petitions are similar, as made in Writ - C No. 18170 of 2018, and even interim relief prayed for is also similar. 3. We have heard D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default. The resolution play (RP) may involve any actions/plans/reorganization including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities/investors, change in ownership, or restructuring Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower's financial difficulty (An illustrative non-exhaustive list of indicators of financial difficulty are given in the Appendix to Anex-I), grants concessions to the borrower. Restructuring would normally involve modification of terms of the advances/securities, which may include among others, alteration of repayment period/repayable amount/the amount of instalments/rate of interest; roll over of credit facilities; sanction of additional credit facility; enhancement of existing credit limits; and, compromise settlements where time for payment of settlement amount exceeds three months. The RP shall be clearly documented by all the lenders (even if there is no cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, on or after March 1, 2018 ('reference date'), including accounts where resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods (as per the previous guidelines), RP shall be implemented as per the following timelines: i) If in default as on the reference date, then 180 days from the reference date. ii) If in default after the reference date, then 180 days from the date of first such default. 9. If a RP in respect of such large accounts is not implemented as per the timelines specified in paragraph 8, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) Applicable in respect of entities notified under IBC within 15 days from the expiry of the said timeline The prescribed timelines are the upper limits. Lenders are free to file insolvency petitions under the IBC against borrowers even before the expiry of the timelines, or even without attempting a RP outside IBC." (emphasis supplied) 5.1 Thus, it appears, the circular provides a resolution plan for a debtor which involves " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like structural flaws in the regulatory mechanism as implemented; fuel supply crisis in thermal sector; evacuation system constraints; populist decisions taken contrary to the letter and spirit of Section 61 of the Electricity Act, eroded the semblance of financial creditworthiness in the power sector. According to the petitioners, out of Indian banks' gross NPAs or bad loans of around Rs. 11,00,000 crore, power sector has around 2,50,000 crores NPAs on account of non-availability of coal, lack of PPAs, wrongful under-recovery and disallowance of legitimate cost changes for variety of reasons. 8. In this backdrop, the circular has been issued on 12.02.2018 and it was brought into force from 01.03.2018 (the reference date). 9. Respondent no. 3 - Ministry of Power, having recognized that power sector has been facing several financial issues on account of factors leading to a situation wherein the power sector, in particular the thermal, has contributed to an increase of NPAs, the Standing Committee of the Parliament on Energy (2017-18), had a briefing on "stressed/non-performing assets in electricity sector, pertaining to the Ministry of Power, by their representatives on 23rd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re under severe financial stress and are currently under SMA-1/2 stage or on the brink of becoming NPA. This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc. These projects were commissioned on the basis of national need/ demand of electricity, availability of all other essentials required in this regard. However, due to unforeseen circumstances, these plants are suffering from cash flows, credit rating, interest servicing etc. Hence, simply applying the RBI guidelines mechanically by the banks, financial institutions, joint lender forums will push these plants further into trouble without any hope of recovery. The Government of India proposed new credit rating system for fundamentally strong projects which face temporary cash flow mismatch. The emphasis was on various inbuilt credit enhancement structures. The Committee understand that banks have not adopted these guidelines for assessing the credit risk of infrastructure companies. The new norms provided the risk weight corresponding to each rating levels which the banks have to use for their capital adequacy. The Committee are of the opinion that banks and other financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t kinds exhibiting hollow exercises only, all efforts should be made to display that there is no mismatch between words, action and the result. Shakti Scheme 8. There are genuine apprehensions regarding availability and allocation of coal among the power producers. During the recent study visit, the Committee itself found that the availability of coal in one of the NTPC plants is very critical and this is the situation in several other plants of the NTPC as well. This affectively rebuts the claim of the Coal India that there is no shortage of coal in the country. The Committee expect that CIL would focus on the seriousness of the issues instead of making tall claims without any basis. The delay in the implementation of the scheme of SHAKTI should not have happened as it has disastrous entailing effects. The Committee, therefore, recommend that CIL should make every effort to make available the required quantity of coal to every developer in a time-bound manner. Such timeframe for provision of coal to developers be also notified for public information. Inter-Ministerial group on NPAs 9. ... ... ... The responsibility dwells upon the Ministry of Power to ensure that promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or adjustment in the way of making working capital available for passing on the interest variable to the stressed asset. Strategic Debt Restructuring 13. The Committee note that the major reasons for stress in most of the thermal power projects have been attributed to (i) non-availability of Fuel (a) Cancellation of coal block, (b) projects set up without linkage, (ii) lack of enough PPA by states, (iii) inability of the promoter to infuse the equity and working capital, (iv) contractual/tariff related disputes, (v) issues related to banks/financial institutions (FIs), (vi) delay in project implementations leading to cost overrun and (vii) aggressive bidding by developers in PPA. Once the project is categorized as NPA, remedial measures of different efficacy follow. One of the remedies available is Strategic Debt Restructuring Scheme. ..." (emphasis supplied) 9.1 From a bare perusal of the 37th report and the backdrop against which the subject "Stressed/Non Performing Assets in Electricity Sector" was referred to the Standing Committee and, as submitted by counsel for the Union of India and the petitioners, it is clear that the circular was not within the knowledge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l stress and are currently under SMA-1/2 stage or on the brink of becoming NPA. This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc. These projects were commissioned on the basis of national need/ demand of electricity, availability of all other essentials required in this regard. However, due to unforeseen circumstances, these plants are suffering from cash flows, credit rating, interest servicing etc. Hence, simply applying the RBI guidelines mechanically by the banks, financial institutions, joint lender forums will push these plants further into trouble without any hope of recovery." It is needless to mention that the petitioners representatives shall supply a copy of this order and of the writ petition with annexures to all the respondents within one week from today. We only observe that action may be avoided on the basis of the impugned circular dated 12.2.2018 issued by respondent no.2- Reserve Bank of India addressed to all Scheduled Commercial Banks and All-India Financial Institutions, against members of the petitioners association, subject to condition that the member(s) is/are not willful defaulter(s) till the mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1 - To set up a High Level Committee To deal with the cross sector concerns raised by various stakeholders and consider suggestions made by them, during presentations & submissions (as shown in Figure), an appropriate High Level Empowered Committee (HLEC) be constituted by the Ministry of Power. This would be in line with the recommendations given by the Hon'ble Parliamentary Standing Committee on Energy in it's 37th report. The HLEC may in a time bound manner specifically look into the cross cutting issues being faced by the thermal power sector in general and IPPs in particular. Recommendation 2 - Additional time for commissioned assets An additional 180 days, beyond the timelines prescribed under RBI's circular dated 12th February 2018 may be allowed to commissioned thermal power projects which have been commissioned by 12th February 2018 and have not been admitted or referred to NCLT so far. This would provide an opportunity for the HLEC to address sectoral constraints and provide a window for such assets to optimize their operations. Banks would carry out more intensive monitoring of the account and its cash flows to mitigate any further possibilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative also on the Committee. 13. It would not be out of place for us to mention that after Mr. Singhvi, learned Senior Counsel for the petitioners closed his arguments on interim relief, learned Senior Counsel for the RBI, Mr. Anurag Khanna, at that stage, submitted that the RBI proposes to make an application for transfer of these petitions to the Supreme Court, to be heard with other petitions pending there, challenging the very same circular, and prayed for short adjournment to advance arguments in reply. The RBI, accordingly, I am informed, made an application for transfer. The Supreme Court, however, adjourned the hearing of the application and, despite insistence, did not grant stay of hearing of these petitions on interim relief. 14. In the meanwhile, the Standing Committee on Energy submitted its 40th report to the Parliament on 07.08.2018. This report is on 'Impact of RBIs Revised Framework for Resolution of Stressed Assets on NPAs in electricity Sector' pertaining to Ministry of Power. It appears that the Committee had a series of discussions on the subject between 11 April and 5 July 2018 with the representatives of the Ministry of Power, Ministry of Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited number of judges. It will not be so easy." (emphasis supplied) "unfortunately 100 per cent consensus to be reached is difficult because in some projects we are having as many as 27 banks." (emphasis supplied) 14.3 Explaining why the electricity sector should be treated differently with respect to resolution of the stressed assets, the CMD, during his presentation before the Committee, stated as under: "Power Sector is in a transition which is well known and we are really moving in from a low demand, low supply situation to a moderately high demand context. This is the transition period that needs to be managed. The RBI framework or the other issues that we have been talking about addresses only the financial issues. Of course, as a financial institution that is our major concern but it does not address a whole range of issues that are external to the financing matters. We have to take into consideration two major important contexts. One is the need for a national energy security in the context of managing the transition in the power sector. (Second,) these stressed assets are national assets at the end of the day and need to be preserved, protected and conserved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of the banks as well as in the books of the company. Now, this deadline is approaching so fast. The bidding process takes time, and then there are negotiations involved in it. If in the case of power project 12 months' time is given, then this can work smoothly and also very efficiently. Hence, we want an extended time for these." (emphasis supplied) 14.9 Highlighting the need for synchronization between the RBI's Guidelines and the resolution of the systemic issues of the Electricity Sector, the Chairman, SBI deposed that: "From the timeline point of view, even though the RBI circular has the complete framework but its implementation might not give enough results. The reason is, still we have problems with the coal supplies, PPAs - because many plants do not have PPAs, they have only partial PPAs. We have large regulatory recoverables. Unless these three are resolved, any amount of changes we do to the RBI framework would not pull the sector up. My request is, synchronize the implementation of those with the RBI circular." (emphasis supplied) 14.10 Similarly, while highlighting the problems in formulating a framework for resolution of stressed assets in el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a need for a separate framework which recognises and addresses the externalities faced by the power sector, as has been acknowledged not only by the Standing Committee but also by the Committee constituted by orders of this Court. He submitted, the circular fails to provide for an alignment of its mechanism with the regulatory regime and statutory scheme and policy in the power sector with the crippling distortion. He submitted that if the circular is implemented as it is and/or the time for its implementation is not extended for another 180 days, as recommended by the Committee, it would be disastrous and the entire power sector will get affected thereby impacting on the need of power/electricity in the rural areas of the country. The impugned circular, he submitted, is contrary to the legislative policy of the Electricity Act and public policy and ought to be quashed and set aside. He submitted that there was no need of issuing the circular and issuing mandatory directions to the banks/financial institutions regulated by it since such a power is always vested in them. He then submitted that the resolution plans which the petitioner company and its lenders are working on will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to be achieved - resolution of stressed assets and adopts a 'one pill for all ills' approach. The circular, it was submitted, treats regulated and unregulated sectors in the same manner failing to consider sectoral issues and ground realities, affecting different sectors. Power sector, he submitted, is heavily regulated and dependent on Government dispensation, such as tariff is regulated and determined by Central and State Electricity Regulatory Commissions, all claims and compensation, including increase in taxes and duties, have to be approved before Generating Companies can recover them as part of tariff, inputs required for generation - coal, gas etc. are allocated exclusively by the Government of India and distributed by Government Companies, like Coal India, GAIL etc. and the purchasers, i.e. the distribution licensees are limited and are mostly governed and owned by State Agencies. Power sector, it was submitted, is unlike an unregulated sector, like Steel, where increase in taxes etc. can be passed on immediately to the consumer. Similarly, raw material can be procured privately and there is freedom to sell to anyone e.g. GST approval order took nearly 9 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its employees and personnel and they are bound to cooperate and if they do not, a remedy by way of an application to the NCLT is provided under Section 19 (2) of IBC. Thus, for admission of a petition for insolvency resolution, except for the suspension of the erstwhile Directors, there is no change in the running of its business. 16.7 Mr. Kadam, then submitted that the RP is also mandated to look for resolution applicants in place of the former management. For this, the RP has to, inter-alia, issue an Expression of Interest under Regulation 36A of IBBI (Insolvency Resolution Process for Corporate Persons) inviting resolution applicants within 75 days from the date of admission of the applications, to take over the business of the corporate debtor. Section 14 gives a protective cover to the corporate sector by a moratorium being imposed on any suit or other recovery proceedings against it. It is also provided with continuity of essential services as contemplated by Section 14(2) of IBC. In order to meet the objects of IBC, i.e. (i) maximisation of value of assets; and (ii) a time bound resolution of stressed assets, a period of 270 days is provided under Section 12 thereof, for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts i.e. defaulters with more than 60 percent NPA and culminating in the impugned direction for initially proceeding against accounts exceeding Rs. 2,000 crores and thereafter proceedings against accounts above Rs. 100 crores and leaving the remaining cases to be decided in a further phased manner. In this backdrop, he submitted that having regard to the objective behind Reserve Bank of India exercising its powers by issuing different circulars including impugned circular, it is in the larger interest of the economic health of the country. 17. At the very outset, I would like to consider the question whether and to what extent this Court can look into or refer to or place reliance upon the Standing Committee reports. In this connection, it would be necessary to have a close look at the judgment of a Constitution Bench of the Supreme Court in Kalpana Mehta & Ors. Vs. Union of India & Ors., 2018 SCC OnLine SC 512. In this case, the Supreme Court considered the questions referred by the 2-Judge Bench, (i) whether in a litigation filed before this Court (Supreme Court) either under Article 32 or Article 32 or Article 136 of the Constitution of India, the Court can refer to and place re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, is relevant. It reads as follows:- "270. Functions.- Each of the Standing Committees shall have the following functions, namely- (a) to consider the Demands for Grants of the related Ministries/Departments and report thereon. The report shall not suggest anything of the nature of cut motions; (b) to examine Bills, pertaining to the related Ministries/Departments, referred to the Committee by the Chairman or the Speaker, as the case may be, and report thereon; (c) to consider the annual reports of the Ministries/Departments and report thereon; and (d) to consider national basic long-term policy documents presented to the Houses, if referred to the Committee by the Chairman or the Speaker, as the case may be, and report thereon: Provided that the Standing Committees shall not consider matters of day-to-day administration of the related Ministries/Departments." (emphasis supplied) 17.2 Rule 274 (3) of the Rules, provides that the report of the Committee together with the minutes of the dissent, if any, is to be presented to the House. Rule 277 stipulates that the report is to have persuasive value. The Supreme Court in paragraph 125 of the judgment, observed that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary Standing Committee report, subject to the right of the respondents to contest or controvert the same. In such a situation, the Courts would be duty bound to afford the respondents an opportunity of being heard in consonance with the principles of natural justice. The Supreme Court has made a categoric observation that whenever a contest to a factual finding in a Parliamentary Standing Committee report is likely and probable, the Court should refrain from doing so. 17.4 After considering these Rules and other relevant materials placed before the Bench, the Hon'ble Chief Justice of India for himself and A.M. Khanwilkar, J. has drawn the following conclusions in paragraph 146: "146. In view of the aforesaid analysis, we answer the referred questions in the following manner:- (i) Parliamentary Standing Committee report can be taken aid of for the purpose of interpretation of a statutory provision wherever it is so necessary and also it can be taken note of as existence of a historical fact. (ii) Judicial notice can be taken of the Parliamentary Standing Committee report under Section 57(4) of the Evidence Act and it is admissible under Section 74 of the said Act. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt relying upon the report of a parliamentary committee. The court does not adjudge the validity of the report nor for that matter does it embark upon a scrutiny into its correctness. There is a functional complementarity between the purpose of the investigation by the parliamentary committee and the adjudication by the court. To deprive the court of the valuable insight of a parliamentary committee would amount to excluding an important source of information from the purview of the court. To do so on the supposed hypothesis that it would amount to a breach of parliamentary privilege would be to miss the wood for the trees. Once the report of the parliamentary committee has been published it lies in the public domain. Once Parliament has placed it in the public domain, there is an irony about the executive relying on parliamentary privilege. There is no reason or justification to exclude it from the purview of the material to which the court seeks recourse to understand the problem with which it is required to deal. The court must look at the report with a robust common sense, conscious of the fact that it is not called upon to determine the validity of the report which constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hok Bhushan, J., while recording a separate opinion in Kalpana Mehta, in paragraph 152, observed that the apprehension of the respondents that their case shall be prejudiced if this Court accepts the Parliamentary Committee report in evidence, in our opinion is misplaced. By acceptance of a Parliamentary Committee report in evidence does not mean that facts stated in the report stand proved. Ashok Bhushan, J., in short stated that any observation in the report or inference of the Committee cannot be held to be binding between the parties and they are at liberty to lead evidence independently to prove their stand in a court of law. This is obviously subject to a dispute being raised by respondents in respect of the facts reflected in the report. 18. Insofar as the present case is concerned, that question of contest does not arise since the facts as reflected in the 37th and 40th reports are not in dispute, insofar as the power sector is concerned, such as reference to the major reasons for stress in most of the thermal power projects attributable to non-availability of fuel, cancellation of coal blocks, projects set up without linkage, lack of enough PPA by States, inability of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sense, conscious of the fact that it is not called upon to determine the validity of the report which constitutes advice tendered to the Parliament. The extent to which the court would rely upon a report must necessarily vary from case to case and no absolute rule can be laid down in that regard. 20. I am conscious of the fact that such reports are only an advice tendered to the Parliament and that it has persuasive value. However, a judicial notice of the reports can be taken by courts and it can be looked into or taken note of or referred to or placed reliance upon, to the extent indicated in Kalpana Mehta (supra). The Court can look into the facts, as reflected in the report, while examining the case, in particular the facts, which are not in dispute. The RBI, has not raised any dispute with regard to the facts, insofar as the power sector is concerned, reflected in the reports. The RBI has raised a dispute regarding the recommendations made and opinion expressed by the Committee. I, therefore, make it clear that I am only looking into the facts and figures referred to in the reports. 21. The two reports which have come on record (37th and 40th reports), are quite exhaustive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich render it necessary for him to take immediate action;" (emphasis supplied) 22.1 Section 35AA and Section 35AB, inserted in the BR Act, by way of Amending Act, 2017, read thus: "35AA. The Central Government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016. Explanation. - 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." 22.2 The Ordinance was ultimately replaced by the Amending Act, 2017, and it received assent of the President on 25.08.2017. The Statement of Objects and Reasons of the Amending Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to prevent its affairs being conducted in a manner detrimental to the interests of depositors or in a manner prejudicial to the interests of the banking company. But this power was not exercised by RBI, insofar as the power sector is concerned, till the circular was issued. 22.4 A plain reading of Section 35AA shows that to issue directions as contemplated thereunder, a basic requirement is that the Central Government, by order, requires and authorises RBI to initiate insolvency resolution process in respect of a default, under the provisions of the IBC. In other words, to initiate insolvency resolution process in respect of a default, on the directions of RBI to any banking company or banking companies, authorisation by the Central Government is a basic requirement. Insofar as Section 35AB is concerned, for issuing direction under this provision, authorisation as contemplated by Section 35AA is not a precondition and direction under this provision can be issued to the banking company or banking companies for resolution of "stressed assets". This provision does not make reference to the requirements of authorisation by the Central Government to the RBI to issue directions and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untry. Therefore, it was considered necessary to make provisions in the Banking Regulation Act, 1949 for authorising the Reserve Bank of India to issue directions to any banking company or banking companies to effectively use the provisions of the Insolvency and Bankruptcy Code, 2016 for timely resolution of stressed assets. 2. It was accordingly decided to make amendments to the Banking Regulation Act, 1949. Since Parliament was not in session and immediate action was required to be taken, the Banking Regulation (Amendment) Ordinance, 2017 was promulgated by the President on the 4th May, 2017. 3. The Banking Regulation (Amendment) Bill, 2017 which seeks to replace the Banking Regulation (Amendment) Ordinance, 2017, provides for the following, namely:- (a) to confer power upon the Central Government for authorising the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016; (b) to confer power upon the Reserve Bank to issue directions to banking companies for resolution of stressed assets and also allow the Reserve Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be proper to give further opportunity to both the sides to make their submissions on this question. 22.8 The RBI Act was enacted and brought in force on 6 March 1934. Under this Act, the RBI has been constituted to regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency any credit system of the country to its advantage. The RBI is obliged to take a macro look at the financial condition and fiscal position of the country as a whole. It is a regulator to secure the monetary stability and is a bankers' bank. The submissions made on behalf of RBI about its role under the provisions of RBI Act and BR Act cannot be disputed or brushed aside, and I find force in the same. Sub-section (1) of Section 7 of the RBI Act provides that the Central Government may, from time to time, give such directions to the RBI as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. I am avoiding to make reference to other sub-sections, since the arguments of learned counsel for the parties centered around Section 7(1) only. Under this provision, the Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares. (3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once." (emphasis supplied) 23.1 Then, Sections 13 and 14 deal with declaration of moratorium and public announcement. Section 15 provides the procedure for public announcement of corporate insolvency resolution process. Section 16 deals with appointment and tenure of interim resolution professional. Section 17 deals with management of affairs of corporate debtor by interim resolution professional. Section 18 provides for duties of interim resolution professional. Section 20 speaks about management of operations of the corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That process in the present case as mandated would start any time within 15 days from 27.08.2018 as provided for in para 9 of the circular. 24. In the light of these provisions, I would like to have a fresh look at the circular. The circular issued in exercise of the powers under these provisions, prescribes a timeline, namely if the borrower is in default as on the reference date (i.e. 01.03.2018), then 180 days therefrom, and where the default is after the reference date, 180 days from the date of first default. The footnote states that the prescribed timelines are the upper limits. It further states that lenders are free to file insolvency petitions under the IBC against borrowers even before the expiry of timelines or even without attempting a Resolution Plan outside IBC. The reading of the circular with the footnote makes it clear that lenders, irrespective of the direction issued by the RBI vide the circular, are free to file insolvency petitions under Section 7 of IBC against borrowers even before expiry of the timeline prescribed under the circular. The circular, however, mandatorily directs the banking company to file insolvency petitions on expiry of 180 days under IBC i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the powers under Section 7 of the RBI Act, no irreparable loss would be caused to the economy of the country. 26. The two major important circumstances, insofar as the power sector is concerned, are the need for national energy security in the context of managing the transition in the power sector and these stressed assets are national assets at the end of the day and need to be preserved, protected and conserved. If the power generating companies are willful defaulters or even otherwise, it is and was always open to the lenders to take appropriate steps/action under IBC, for which directions of RBI in the form of a circular under Sections 35AA and 35AB were not necessary. In other words, it was submitted that the RBI circular addresses only financial issues and not sectoral issues and, prima facie, treats unequals equally. Merely because similar demands from other sectors, such as cement, shipping etc., are likely to come forward, cannot be the ground to overlook sectoral issues reflected in the Parliamentary Committees reports - insofar as power plants are concerned. A representative of SBI also deposed before the Committee that the time-line needs to be extended further. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untry apart from the fact that it would be contrary to the scheme of the IBC and the circular issued in exercise of the powers under Section 35AB of BR Act. 29.1 The RBI in their affidavit dated 20.08.2018, in paragraphs 2, 3 and 4 has stated thus: "2. That it is submitted that as on March 2010, the gross advances made by public sector banks was Rs. 32,64,989 crores and the total gross NPAs was Rs. 81,805 crores, being approximately 2.51% of the total gross advances. This figure of NPA's has increased substantially as on March 2018, where the total gross advances was Rs. 83,99,196/- crores and the total gross NPAs was Rs. 9,62,621 crores, being 11.46% of the total gross advances. A copy of the tabular chart setting out the details of the increase in the gross advances and NPAs in the economy (in aggregate) for the period commencing from March, 2010 to March, 2018 is annexed hereto and marked as Annexure -"1". 3. That it is submitted that as on March 2015, the gross advances made by public sector banks to electricity generation companies was Rs. 4,08,256 crores and the total gross NPAs was Rs. 10,804 crores, being approximately 2.6% of the total gross advances. The figure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. 29.3 Section 7 of IBC provides for initiation of corporate insolvency resolution process by a financial creditor. Under this provision, a financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Further, it provides the procedure, to which I have already made brief reference contained in Chapter II of Part II of IBC, which provides a mechanism for insolvency resolution process. However, no steps are taken against the members of the Associations till today under IBC. 29.4 Section 12 of IBC, as seen earlier, provides a timeline (180 days) for completion of insolvency resolution process. Under this prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SBI deposed that even though the RBI circular has the complete framework but its implementation might not give enough result. The circular provides 100 percent consensus/consent of the lenders for implementation of resolution plan. It was, therefore, submitted that the circular though provides for working on resolution plan, it would, ultimately, push the debtor to face IBC procedure. In other words, the condition that 100 percent consensus is required to be reached in the circular, has made RPs unworkable outside IBC. As submitted by counsel for the petitioners, till today not a single corporate debtor could get RP approved outside IBC. The RBI could not satisfactorily explain this anomaly. 29.6 Section 35A was inserted in BR Act by Act 95 of 1956 and was brought into force from 14.01.1957. It is not clear whether any directions insofar as stressed assets are concerned, have ever been issued since 2010, in particular 2015. Then, the provisions contained in Sections 35AA and 35AB were introduced by Amending Act, 2017 with effect from 4 May 2017. Even thereafter, till the circular was issued no steps against the stressed assets have been taken. In this backdrop, paragraph 6 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus with the objectives of the IBC. It was further submitted, stress in a particular be it power, steel, textiles, sugar, telecom etc. has no nexus with the object and purpose of the IBC. This can, therefore, never be a reason for distinguishing between corporate debtors who are in default. The directions, by the impugned circular, it was submitted, are sector agnostic. On the contrary, it was further submitted that a classification by sectors would result in mini56 classification which, in turn, would violate the mandate of Article 14. The statutory mandate of the IBC is to take action even in the default in payment. Neither the IBC nor the BR Act provide for an arbitrary judgment on genuine and non-genuine defaults. In other words, all defaults are treated alike by the law. 31. I once again make it clear that the object of IBC read with Sections 35AA and 35AB of BR Act is laudable. The powers of the RBI under the provisions of these enactments cannot be disputed. As a matter of fact, having regard to the economic health, in the light of different scams happened in the country during last few years, the RBI should and can exercise powers under Section 35AA and 35AB. The powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the banking system would qualify for immediate reference under IBC. Thus, in view of the recommendations made by the Advisory Committee, a reference under IBC was made only in respect of 12 accounts out of the top 500 exposures in the banking system. Similarly, the circular dated 28.08.2017, in the form of explanation, also shows that the RBI acted on the recommendations of IAC constituted pursuant to the Banking Regulation (Amendment) Ordinance, 2017 and based on its recommendations, 12 accounts were identified for immediate reference under the IBC. As regards other NPA accounts, the IAC had recommended that banks may be required to finalise a resolution plan within six months, failing which these may be directed for reference under IBC. The IAC had met twice to deliberate on the specific contours of the approach to be followed in respect of such NPA accounts. Based on the IAC recommendations, it was decided that of the above accounts, those which are materially NPA as on 30.06.2017, i.e., where more than 60 percent of the total outstanding was classified as NPA on CRILC, would be given time till 13 December 2017 for resolution under IBC. It is, thus, clear that there is a diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answered by the Central Government. Learned ASG submitted that extension of 180 days may be granted. His submission was on the strength of reports of Standing Committee and the decision to constitute a High Level Empowered Committee with the approval of the Prime Minister. In this backdrop, it is necessary that the Central Government, without any delay, should consider whether it would like to issue any such directions. 35. In view of the power shortage in the country, private participation became essential for achieving fast growth of power generation keeping pace with the demands of the country. The Electricity Act, 2003, undoubtedly, attracted the entry of the corporate sector into power generation. Private participation in the power sector and their contribution, undoubtedly, improved the power generation condition in the country. However, due to unforeseen circumstances, the power plants, during last three-four years, are suffering from cash flaws, credit rating, interest servicing etc. As of now, commissioned plants worth thousands of MWs are under severe financial stress and are currently under SMA-1/2 stage or are becoming/have become NPAs. It appears from the report of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It also appears that the power sector is in a transition, which is well known and moving from a low demand, low supply situation to a moderately high demand context and this being the transition period, needs to be managed. This has to be done in the light of the need for National Energy Security in the context of managing the transition in the power sector on the basis of the examples, quoted by the experts before the Standing Committee in cases of Chhattisgarh Project, Abhijit Group and Meenakshi Energy. It appears that the deadline provided under the circular to reach 100% consensus is not only difficult but perhaps, impossible. The representative of SBI, therefore, stated that the deadline is not only for getting bids but even the restructuring has to be reflected in the books of the Banks as well as in the books of the Companies, and since it is approaching so fast, the bidding process which normally takes time and then involves negotiations, the period of 180 days is short. 38. The question whether RBI, which is within its power to issue a circular in exercise of powers under Sections 35AA and 35AB of Amending Act, 2017, and while giving any directions is expected to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made at all levels, including all ministries to save the power sector. It would, therefore, be appropriate for the Central Government to step in, in exercise of the powers under Section 7 of RBI Act, and after consultation with the Governor of RBI, to take an appropriate decision or issue directions, as it deems fit and proper in the larger public interest. 41. It would not be necessary at this stage to deal with any individual case, particularly in view of the admitted position that the circular is under Section 35AB and not in any specific case as contemplated by Section 35AA of IBC. In other words, the circular is not issued in specific case(s) including any particular/specific sector, as contemplated under Section 35AA, but it is under Section 35AB. 42. In this backdrop, I am inclined to direct the High Level Empowered Committee to submit its report within two months from the date of its constitution. The Ministry of Power shall invite a senior officer of the RBI, after consultation with the Governor of RBI, as a member of the High Level Empowered Committee forthwith. In the meantime, I observe that the Central Government should consider whether it would like to issue dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse impact that may flow from the grant of interim relief far outweighs the individual and yet to be substantiated claims of the petitioners. 44. Reverting firstly to the undisputed facts, these three petitions question the Directive dated 12 February 2018 issued by the RBI laying down a detailed procedure for restructuring of stressed assets. While a challenge is also laid to Sections 35AA and 35AB of the Banking Regulation Act, 1949 1949 Act, no party has addressed submissions in this respect. One therefore has to proceed on the basis that the power of the R.B.I. to issue the impugned directions is neither doubted nor seriously challenged at this stage. The core issue which is raised is with respect to the prescription of a 180-day period for implementation of a Resolution Plan RP and the prayer that this period be extended by the Court in the interim. This prayer is addressed primarily in light of the recommendations made by a Committee constituted pursuant to the interim order passed by the Court on 31 May 2018 in Writ Petition No. 18170 of 2018 as well as the observations and recommendations contained in the 37th and 40th Reports of the Standing Committee on Energy presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to enable this Court to consider the issue of grant of interim relief only. We have also been informed of a Transfer Petition preferred by the RBI before the Supreme Court and which is fixed for hearing on 28 August 2018 along with other petitions/matters assailing the impugned directive. However no interim stay of the present proceedings operates in respect of these proceedings and therefore learned counsels for respective parties have urged us to proceed to consider and rule on the issue of interlocutory relief. Having noticed the backdrop in which the present hearing on these three writ petitions was conducted I proceed to briefly notice the undisputed facts. B. THE FACTUAL MATRIX 47. On 4 May 2017, the Union Government promulgated the Banking Regulation (Amendment) Ordinance, 2017 2017 Ordinance. By virtue of this Ordinance, Sections 35AA and 35AB were introduced in the Banking Regulation Act, 1949 1949 Act. Section 35AA empowers the Union Government to authorise the RBI to issue directions to any banking company/companies to initiate an insolvency resolution process in respect of a default under the provisions of the Insolvency and Bankruptcy Code, 2016 IBC. Section 35A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th May, 2017. 3. The Banking Regulation (Amendment) Bill, 2017 which seeks to replace the Banking Regulation (Amendment) Ordinance, 2017, provides for the following, namely:- (a) to confer power upon the Central Government for authorising the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016; (b) to confer power upon the Reserve Bank to issue directions to banking companies for resolution of stressed assets and also allow the Reserve Bank to specify one or more authorities or committees to advise banking companies on resolution of stressed assets; and (c) to amend section 51 of the Act so as to make therein the reference of proposed new sections 35AA and 35AB. 4. The Bill seeks to replace the said Ordinance." 49. The Standing Committee on Energy presented its 37th Report to the Lok Sabha on 7 March 2018. This report while dealing with myriad issues affecting the power sector of the country, also considered the position of stressed/non performing assets in the sector. The Standing Committee essentially dwelt upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI dated 13 June 2017 and 28 August 2017 prima facie evidences a tiered and phased approach adopted by RBI to deal with stressed assets based upon their outstanding and their impact on the banking sector as a whole. These two directives were ultimately replaced by the impugned Directions dated 12 February 2018. The impugned Directions which are described as guidelines issued in exercise of powers conferred under Section 35A, 35AA, 35AB of the 1949 Act read with Section 45L of the Reserve Bank of India Act, 1934 1934 Act are a replacement of all existing instructions relating to the resolution of stressed assets and the institutional mechanisms created at different stages by the RBI. 51. Paragraph 4 commands all lenders to put in place Board approved policies for resolution of stressed assets including timelines for resolution. It further mandates that as soon as there is a default in any lender's account, all lenders, singly or jointly, shall initiate steps to cure the same. It essentially emphasises the requirement of exploring and evaluating a R.P. immediately upon default having occurred. The challenge in the instant batch of writ petitions has turned primarily around the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schemes have been invoked but not yet implemented, shall be governed by the revised framework." 52. This Circular was challenged firstly in the petition preferred by IPPA on which a detailed order was passed on 31 May 2018 by a Division Bench of the Court. The Division Bench noticing the observations appearing in the 37th Report of the Standing Committee on Energy, as an interim measure requested the Secretary in the Ministry of Finance of the Union Government to hold a meeting of the respondents 2 to 5 in the said writ petition through their Secretaries and the representatives of the IPPA to consider their grievances and to explore whether any solution to the problem was possible. It further provided that action on the basis of the impugned directive may be avoided against members of the IPPA who are not willful defaulters till the meeting is convened and held. 53. Pursuant to the directions issued by the Court a meeting was in fact held and the report dated 17 July 2018 has been placed and made a part of these proceedings. The said Committee firstly recommended the setting up a High Level Empowered Committee HLEC to deal with the sectoral concerns raised by various stakeholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 billion or above on or after 1 March 2018. In respect of this category of exposures, it provides that the RP shall be implemented within 180 days from the reference date, if in default on that date and in case of default after the reference date then 180 days from the date of first such default. The reference date being 1 March 2018. 56. Paragraph 9 then provides that if a RP is not implemented as per the time frame specified in paragraph 8, lenders shall file an insolvency application either singly or jointly under the IBC within 15 days from the expiry of the timeline. Footnote 8 to paragraph 9 significantly provides that the prescribed timelines are the upper limits and that lenders are free to file insolvency petitions even before the expiry of the timeline or even without attempting a RP outside IBC as provided for in the impugned directive. Paragraph 18 essentially repeals all existing instructions and schemes formulated by the RBI for resolution of stressed assets. It not only discontinues all institutional mechanisms for resolution, it also provides that all accounts where any of the prior existing schemes have been invoked but not yet implemented, shall be governed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests situate in the State of U.P. so as to warrant this Court entertaining a writ petition at their instance. 60. Sri Dwivedi in support of his submissions relied upon the following decisions namely, (A) Nawal Kishore Sharma v. Union of India (2014) 9 SCC 329 Pr.9 to 16; (B) Umesh Chand Vinod Kumar Vs. Krishi Utpadan Mandi Samiti AIR 1984 All 46 (Pr. 23); (C) Aloo Phal Subzi Arhati Association Vs. State of U.P. 2002 ALJ 2587 and (D) Goa Judicial Officers Association Vs. State of Goa 1997 (4) Bom CR 372 (Pr 49 & 52) 61. Further elaborating on the issue of maintainability Sri Dwivedi submitted that Lanco Anpara having a unit in the State of U.P. was not shown to be a member of APP. It was further submitted that Reliance Power, a member of APP had no stressed assets. Insofar as Jaiprakash Power is concerned, it was contended that banks had already decided to invoke the provisions of the IBC. The second aspect arising from the objection with regard to maintainability as formulated by Sri Dwivedi was with respect to the existence of only three plants of members of the petitioners being situate in U.P. while their corporate offices being outside the State. In the submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... damental right. Sri Dwivedi in his usual fairness did concede that the position would be entirely different if the petitioners were to assail the impugned directive on the anvil of Article 14 of the Constitution. In any case, as noticed hereinbefore the question of validity of sections 35AA and 35AB has not been urged at this stage. 64. The second limb of the objection with respect to maintainability was this Court lacking territorial jurisdiction. This Court notes that IPPA and APP have clearly averred that some of their members have interests in the State of U.P. in the shape of coal-based plants established here. Details of plants existing in the State of U.P. have been noticed under the heading "Introduction". In response to this assertion, it has been averred by the RBI that full address and other particulars have not been disclosed. However during the course of oral submissions although it was not disputed that some plants did exist, it was contended that the majority of the members of IPPA and APP were situate outside the State. According to Sri Dwivedi only a few individual members of the two associations had manufacturing facilities with the State of U.P. and therefore th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor and which, according to the petitioners, required a separate and individualistic approach being adopted in respect of that sector. It was also contended that the impugned Circular since couched in mandatory terms clearly robs Banks and FI's of the discretion vested in them under the IBC. It was contended that a plain reading of the Directions clearly established that the Banks and FI's had no option but to initiate insolvency proceedings immediately on the expiry of the 180 day window. It was further submitted that the Circular caused grave and irreparable prejudice to the petitioners since all existing plans of restructuring including those which may be in the process of being implemented stood completely rescinded and wiped out. The petitioners also laid great emphasis on the recommendations framed by the Committee constituted pursuant to the interim directions passed by this Court and the reports of the Standing Committees referred to above as well as the stand of the Union Government itself on the matter to buttress their prayer for the extension of the 180 day period. It was submitted that these reports constituted material evidence that could be relied upon by the Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the concerns of the RBI with respect to the entertaining of sectoral representations, since the matter had been referred to the HLEC, action under IBC may be deferred. Sri Mehta, the learned ASG, has essentially submitted that no irreparable harm or prejudice would stand caused in case the Court were to restrain the initiation of any coercive steps or proceedings under the IBC till such time as the HLEC studies the entire matter and formulates its recommendations/policy. 69. On being specifically queried whether the Union Government was contemplating issuance of directions in this respect by virtue of powers conferred upon it by Section 7 of the 1934 Act, the learned ASG gave no positive answer and remained ambivalent. The learned ASG also did not explain the absence of RBI from the HLEC nor could he justify the evident absence of the impugned directive being subject matter of the Terms of Reference. However the learned ASG did state that the Union would have no issue in inviting RBI to participate in the deliberations and placing their views. It was his categorical submission that in the fitness of things, RBI should be included in the process of deliberations that may take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndow of 270 days is provided for the adoption of a RP in respect of a corporate debtor. It was also submitted that in terms of section 14 (2), all essential services to the corporate debtor are continued. In view of the said provision, it was submitted that the contention advanced on behalf of the petitioners that all contracts including Power Purchase Agreements would stand suspended or annulled, is untenable. 73. Shri Kadamb then explained the actions taken by the RBI commencing from the directions issued on 13 June 2017 explaining that the RBI had proceeded to unroll a process for insolvency resolution in a phased manner. The submission, in essence, was that the steps formulated and unrolled were not a knee jerk reaction but a well considered plan framed by RBI to address the issue of resolution of stressed assets. The Directions, in the submission of Shri Kadamb, put in place a harmonised and simplified framework to tackle stressed assets. 74. Dealing with the contentions and the direction dated 12 February 2018 being not in conformity with the Article 14, Shri Kadamb submitted that RBI is primordially concerned with the management and affairs of banks, banking activity, borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, which constituted 89.47% of its total share capital were invoked on 18 December 2017 and we are informed that the lenders propose to sell the equity owned by them to an identified investor. We were also informed that the total outstanding debt of this particular company as on 31 March 2018 amounted to approximately Rs. 9997 crores. The Court was also apprised of a plan submitted by this petitioner for restructuring of its debts on 16 March 2018. Shri Kadamb also highlighted that there has been a deliberate suppression of a material fact by this petitioner since it has failed to disclose that the S4A had been invoked in its case unsuccessfully and that its proposal for restructuring had been rejected by its lenders on 7 May 2018. In light of the above, it was submitted that the petition was clearly a "dressed up attempt" by the entrenched management to continue its control over the corporate debtor even though the promoters today hold only 10.53% of its equity. 77. The attention of the Court was also drawn to the provisions of Section 12 A of the IBC to submit that even if an application was admitted under Section 7, in the event of a RP being approved by the Committee of Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the banking sector which was necessitated in order to enable public sector banks to maintain the minimum level of regulatory capital. In the submission of Sri Dwivedi the Court cannot possibly turn a blind eye to these undisputed facts in the backdrop of which the impugned directive came to be issued. 81. Rebutting the submission advanced on behalf of the petitioners with respect to the stand of the Union and the recommendations of the Standing Committees, Sri Dwivedi's submissions were as follows. According to him the promulgation of IBC, the introduction of Sections 35AA and 35AB initially by way of the 2017 Ordinance, its replacement by the 2017 Amendment and the specific authorisation of the Union Government under section 35AA were themselves indicative of the principled decision of the Union Government to empower RBI to take emergent steps for the resolution of stressed assets. Sri Dwivedi referred to the amended Preamble of the 1934 Act to highlight the stated will of Parliament to clothe RBI with the requisite powers and authority to frame monetary policy in order to meet the challenges of an increasingly complex global economy as also to lay down a broad monetary pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI to enable a speedy resolution of stressed assets. 84. Sri Dwivedi further countered the argument of a prejudicial impact of the impugned directive by submitting that the circular could not possibly be read as undoing all processes of restructuring which may have either been set in motion or completed under the institutional mechanisms as existing prior to 12 February 2018. Referring to Clause 18 of the impugned directive, Sri Dwivedi submitted that all that stood altered consequent to the promulgation of the directive was that steps for restructuring initiated or adopted earlier would be governed by the revised framework. Elaborating his submissions in respect of the impugned directive Sri Dwivedi submitted that the discretion of banks to invoke IBC had neither been fettered not taken away. All that was sought to be introduced by the impugned directive, according to the learned senior counsel, was to highlight and underline the inherent need for banks and FI's to initiate a RP with expediency. Explaining the Footnote to Paragraph 8 Sri Dwivedi submitted that the same was neither intended nor liable to be read as a provision compelling banks and FIs to initiate a RP without wai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d possibly be considered. According to Shri Dwivedi, there could possibly be no blanket order of restraint, unless requisite facts are disclosed before this Court. Turning then to the individual facts of Prayagraj, Shri Dwivedi reiterated that this particular petitioner had remained a NPA right from 2016. Even today, it was pointed out that no specific revival proposal had been submitted, on the basis of which, it could be prima facie held that this petitioner was entitled to interim protection. 88. Drawing our attention to the last proposal submitted by Prayagraj, it was pointed out that the same also only envisaged the petitioner obtaining further loans from a new creditor in order to liquidate its outstanding dues partly. It was also brought to our attention that the proposed credit facility offered to the petitioner was itself subject to the condition that the new creditor would be granted an overriding charge over its assets, thus, diminishing the position of its existing lenders. It was then submitted that the proposed sale of shares would also not get short circuited in light of the express provisions of the IBC. Elaborating on this aspect, Shri Dwivedi referring to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntation of the directive being deferred clearly did not merit consideration. 91. Although the present order in light of the submissions of parties is only dealing with the entitlement of the petitioners to the grant of interlocutory relief, bearing in mind the fact that elaborate submissions have been advanced, I proceed to deal with the same and record my prima facie opinion in respect thereof hereinafter. 92. The submissions of the petitioners primarily rest on two pillars:- (a) The 37th and 40th reports of the Standing Committee and (b) The irreversible prejudice and loss that shall be caused in case proceedings are initiated under the IBC. G. THE STANDING COMMITTEE REPORTS 93. Insofar as reliance placed on the recommendations and findings contained in the report submitted by the Standing Committee are concerned, the petitioners seek to draw sustenance from the recent decision rendered by the Constitution Bench of the Supreme Court in Kalpana Mehta Vs. Union of India (2018) 7 SCC 1. On the strength of this decision, it is submitted that the reports of the Standing Committees of Parliament can be taken note of by the Court and in light of the findings recorded therein this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot loose sight of the stated stand of the Ministry of Finance which was noted in the following terms by the Standing Committee in its 40th Report:- "....various special resolution schemes introduced by RBI were used by lenders more to address asset classification concerns rather than to effectively resolve stressed assets. An internal review of SDR and S4A schemes, which provided asset classification benefits to banks, revealed that their adoption rate among eligible borrowers was less than 20% and in case of SDR, the success rate was close to zero where implemented, indicating that the schemes were not really used for resolution of stressed assets. XXXX RBI has stated that default is a lagging indicator of financial stress in a borrower's account. The framework provides for 180 days after the lagging indicator to cure the stress, in the case of borrowers with aggregate exposure of Rs. 2,000 crore and above, failing which insolvency resolution process under IBC will be triggered, which provides for another 270 days for resolution. Lenders need to be proactive in monitoring their borrowers and be able to identify financial stress using a combination of leading indicators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways there. We are now recognizing them. Further, it is expected that the banks will have sufficient avenues to raise additional capital so as not to face any capital constraints. As I just mentioned, the Government has budged Rs. 65,000 crore for additional capital infusion in 201819 alone which can be frontloaded. Further, post recapitalization, the scope for PSBs to raise additional market borrowings continue.These measures are expected to assist the PSBs in complying with the regulatory capital requirements and in case of healthier PSBs to also have growth capital. Since substantial parts of stressed assets have been recognized and reasonably provisioned, any further accretion to capital is expected to help any further asset quality stress in the short run and hopefully and eventually support credit growth in the medium to long term while preserving the financial health of our public sector banks. Overall, therefore, we are of the view that the banking system in general including the PSBs is getting stronger with the regulatory and transparency measures undertaken by the RBI and other regulators. The legislative changes brought about through the enactment of IBC and the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is quite vivid on what occasions and situations the Parliamentary Standing Committee Reports or the reports of other Parliamentary Committees can be taken note of by the Court and for what purpose. Relying on the same for the purpose of interpreting the meaning of the statutory provision where it is ambiguous and unclear or, for that matter, to appreciate the background of the enacted law is quite different from referring to it for the purpose of arriving at a factual finding. That may invite a contest, a challenge, a dispute and, if a contest arises, the Court, in such circumstances, will be called upon to rule on the same." 143. In the case at hand, the controversy does not end there inasmuch as the petitioners have placed reliance upon the contents of the parliamentary standing committee report and the respondents submit that they are forced to controvert the same. Be it clearly stated, the petitioners intend to rely on the contents of the report and invite a contest. In such a situation, the Court would be duty bound to afford the respondents an opportunity of being heard in consonance with the principles of natural justice. This, in turn, would give rise to a very peculia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot constitute substantive evidence before the court. The parliamentary committee is not called upon to decide a lis or dispute involving contesting parties and when an occasion to do so arises before the court, it has to make its determination based on the material which is admissible before it. An individual whose conduct has been commented upon in the report of a parliamentary committee cannot be held guilty of a violation on the basis of that finding. In Jyoti Harshad Mehta v The Custodian, (2009) 10 SCC 564, this Court held that a report of the Janakiraman committee could not have been used as evidence by the Special Court. The court held: "57. It is an accepted fact that the reports of the Janakiraman Committee, the Joint Parliamentary Committee and the Inter Disciplinary Group (IDG) are admissible only for the purpose of tracing the legal history of the Act alone. The contents of the report should not have been used by the learned Judge of the Special Court as evidence." 102. Ashok Bhushan J. while dealing with the issues which would arise where the report of a Parliamentary Committee is questioned or impeached observed thus: "393. We are of the view that the law as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluate and consider what would be the true facts. Kalpana Mehta, in the respectful opinion of this Court, cannot be read as holding that once a particular recommendation or finding comes to be recorded in the report of a Standing Committee, it must be accepted and acted upon per se and of its own. While it is true that the Standing Committee on Energy has gone into the issues faced by the power sector in general and has also commented upon the merits of the directions issued by the RBI, these findings or recommendations alone cannot be read as overriding the view taken and adopted by the RBI. H. IBC AND THE ARGUMENT OF IRREVERSIBLE PREJUDICE 104. I then turn to the submissions addressed on behalf of the petitioners with regard to a fait accompli occurring immediately upon proceedings being initiated under the IBC. In order to appreciate this submission this Court must bear in mind the fact that IBC represents, as has been described by the Supreme Court itself, a "paradigm shift" in respect of treatment and restructuring of stressed assets. As is evident from a reading of the SOR of IBC, the legislation itself was framed since Parliament found that the existing framework for inso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter default. Bankruptcy law must address this." 105. After noticing the backdrop in which the IBC came to be promulgated, the Supreme Court in Innoventive observed:- "33. Under Section 30, any person who is interested in putting the memorandum. This plan must provide for payment of insolvency after approval of the plan, and implementation and supervision of the plan. It is only when such plan is approved by a vote of not less than 75% of the creditors, guarantors and other stakeholders. Importantly, and this is a passed by the authority Under Section 14 shall cease to have effect. The its debts and get back on its feet. All this is to be done within a period of 6 comes down and the liquidation process begins." 106. The Court must bear in mind that there is no challenge to the provisions or the underlying scheme of the IBC. It clearly enjoins a banking or a financial institution to initiate the resolution process upon a default having occurred. As has been rightly pointed out by Sri Kadam, the learned Senior Counsel, all that happens upon the admission of a petition under Section 7 and a moratorium having come into operation is the removal and suspension of the management and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration of the rival submissions advanced on this aspect, I prima facie find merit in the contention advanced on behalf of RBI. The RBI in its position as the central bank of the country is primordially concerned with issues such as the formulation of monetary policy, public debt, the condition of banks and FI's and the health of the finances of the country. It is essentially charged with the formulation of "banking policy" designed in the interest of the banking system, monetary stability and sound economic growth. The Court also bears in mind the significant amendments made to the SOR of the 1934 Act as amended in 2016 which reads thus:- "RESERVE BANK OF INDIA ACT, 1934 [Act No. 2 of 1934 amended upto Act No. 28 of 2016] PREAMBLE An Act to constitute a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in [India] and generally to operate the currency and credit system of the country to its advantage; AND WHEREAS it is essential to have a modern monetary policy framework to meet the challenge of an increasingly complex e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the statutory powers entrusted to it, the Court must necessarily examine the extent to which it can possibly or should interfere and tinker with such a policy on merits while exercising its jurisdiction of judicial review under Article 226 of the Constitution. It cannot possibly be disputed that the framing of monetary measures, creation of fiscal policy or management of debt is a highly sensitive and complex exercise. It is in that context that the principles of "judicial self restraint" and "judicial deference" have been formulated. It also raises the important issue of "institutional competence". The parameters of judicial review which must apply in such a situation have been duly noticed in Chitra Sharma based upon a long line of precedents starting from R.K. Garg Vs. Union of India (1981) 4 SCC 675. Dealing with the scope of judicial review and more particularly with regard to the directions framed by the RBI, the Supreme Court made the following pertinent observations in Peerless General Finance and Investment Co. Ltd. Vs. RBI (1992) 2 SCC 343: "74. It is well settled that the court is not a Tribunal from the crudities and inequities of complicated experimental economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overable owed to the lenders as on 31 March 2018 stands at Rs. 9997 Crores. If the RBI therefore, takes the position that the resolution process in respect of this corporate debtor cannot be delayed beyond the time frame stipulated by it and must be addressed with expedition, I find no fault in the same. After all moneys due and recoverable from the petitioner is public debt. I also bear in mind that this petitioner has even before us not referred to any restructuring proposal which could be said to be pending. Its last proposal was itself based on the said petitioner taking on further debt. One of the pre conditions to this proposal was for the existing lenders ceding their charge over its assets and making it subservient to that of the new creditor. This proposal has already been turned down by the lenders. The lenders who have now stepped into the position of shareholders seek to recover their dues by sale of their equity for which an investor has already been identified. On the individual facts as have been placed before us and which are not disputed, it is evident that no relief in the interim is liable to be granted to the said petitioner. 116. Insofar as the members of IPPA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the equity and the security interest created thereon already stands invoked, the moratorium shall have no effect and would not act as a fetter upon further negotiations between the intending investor and the lenders. Secondly, in light of the express provisions of section 28 of IBC, the sale of equity is made subject only to a prior approval by the Committee Of Creditors. Even otherwise, this Court notes that since all the lenders have already agreed to the proposal in principle, even if one lender were to initiate proceedings under the IBC so as to short circuit this process, the same would not take away the right of the majority of lenders equivalent to 90% in the Committee of Creditors to apply for withdrawal from IBC in accordance with section 12 A. 120. The Court is constrained to reiterate here that none of the lenders of Prayagraj were present before the Court. Ultimately the Court has been left to consider the challenge at the hands of the management which retains a mere 10% of the share capital of the corporate debtor. It is this aspect which has perhaps led the RBI to allege that it is a dressed up attempt by the entrenched management to retain control. 121. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 125. Having considered the rival submissions, I am prima facie of the opinion that the contention is not tenable. Firstly RBI stands expressly conferred with the authority to issue directions to a banking company/companies on the subject of resolution of stressed assets. Resolution of stressed assets can take place both within and outside the contours of IBC. In fact the impugned directive undisputedly deals with corporate debt resolution outside IBC. As I read the directions, it appears that the same have been essentially framed to underline, reiterate and emphasise the emergent need to deal with stressed assets and to initiate a RP with expedition. It primarily appears to emphasise a speedy resolution of a stressed asset. Banks cannot be accepted to state that while a default has occurred, a resolution process shall not be initiated. More fundamentally, to hold that individual banks would have the discretion not to invoke IBC notwithstanding a direction of the RBI would be to ignore the amplitude of the powers conferred upon the central bank by virtue of sections 21, 35A and 35AB of the 1949 Act. M. THE SEMINAL ISSUES 126. While this Court has refused the prayer for interim r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndecided on whether to initiate the process envisaged under section 7. 128. Reverting to the impugned directive, the Court notes that in terms of paragraph 5 and more particularly clause (b) (i) thereof, it appears that the RBI construes a RP to be implemented only if a restructuring plan enjoys the approval of all lenders. The Court notices this aspect since in terms of the provisions of the IBC a RP shall stand approved if it enjoys the approval of 66% of the lenders in the Committee of Creditors. Paragraph 5 may lead to a situation where a lender even in a minuscule percentage may stall the implementation of a RP. This Court also takes note of the fact that originally sub section (3) of Section 28 required the approval of 75% of the creditors. This percentage as prescribed therein was amended and presently stands reduced to 66%. RBI must therefore be called upon to explain the logic and the necessity of the restructuring plan enjoying the approval of the entire consortium of lenders. 129. The third aspect of significance which prima facie arises flows from paragraph 6. Paragraph 6 provides that all RP's involving restructuring/change would require an independent credit evaluat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be referred for CIRP. RBI has carried out power to issue binding directions. The position of the RBI as an expert been reiterated in several decisions of this Court: [R.K. Garg v. Union of India (1981) 4 SCC 675, Peerless General Finance and Investment Co. Ltd. v. RBI (1992) 2 SCC 343, TN Generation and Distribution Corporation Ltd. v. CSEPDI-Trishe Consortium (2017) 4 SCC 318. 41. JAL was classified under the SMA - II category (demands overdue for more than 60 days) by banks as early as on 3 October 2014 and as an NPA since 31 March 2015. We agree with the submission of the RBI that any found for JAL and JIL. The facts which have emerged before the Court from and JIL. The apprehensions of the home-buyers in regard to their financial incapacity is borne out by RBI, as a responsible institution has urged before the Court. The IBC has been enacted in the form of a comprehensive bankruptcy law and with a specific legislative intent. With the amendment brought about by the Ordinance promulgated in June 2018, the interests of the home buyers have been sought to be safeguarded. Accordingly, we accede to the request made on behalf of the RBI to allow it to follow the recom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Union, which prevaricated on the issue of either the necessity of initiating the consultative process and whether it was even considering invoking its powers under section 7 of the 1934 Act. However as observed hereinbefore, the Union cannot remain irresolute and undecided. If it stand convinced that the impugned directive merits modulation, then it must consider taking recourse to the statutory mechanism placed and initiate the process of consultation. Its position of ambivalence cannot be permitted to perpetuate. Such issues should be resolved between the two governmental organs and should require no intervention of the Court. 133. RBI is essentially a monetary and fiscal regulator. It does not appear to be specifically charged with the function of framing sectoral resurrection measures or to fix incipient or seething problems faced by a particular industry. It would appear that it is essentially obliged to take a macro look at the financial sector and the fiscal condition of the country as a whole. If it be the stand of the Union that a particular industry merits independent consideration in light of its own peculiar facts, then it is for it to convey and advise the RBI acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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