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TMI Blog2019 (4) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... be manifestly arbitrary. When it comes to lack of any guidelines by which the power given to the RBI is to be exercised, it is clear from a catena of judgments that such guidance can be obtained not only from the Statement of Objects and Reasons and the Preamble to the Act, but also from its provisions. A cursory reading of Section 35A makes it clear that there is nothing in the provision which would indicate that the power of the RBI to give directions, when it comes to the Insolvency Code, cannot be so given. The width of the language used in the provision which only uses general words such as public interest and banking policy etc. makes it clear that if otherwise available, we cannot interdict the use of Section 35A as a source of power for the impugned RBI circular on the ground that the Insolvency Code, 2016 could not be said to have been in the contemplation of Parliament in 1956, when Section 35A was enacted. Dr. Singhvi s contention must, therefore, fail. Section 35AA makes it clear that the Central Government may, by order, authorise the RBI to issue directions to any banking company or banking companies when it comes to initiating the insolvency resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1156 OF 2018 WRIT PETITION (CIVIL) NO.1153 OF 2018 WRIT PETITION (CIVIL) NO.1166 OF 2018 WRIT PETITION (CIVIL) NO.1206 OF 2018 WRIT PETITION (CIVIL) NO.1212 OF 2018 WRIT PETITION (CIVIL) NO.1236 OF 2018 WRIT PETITION (CIVIL) NO.1296 OF 2018 SLP(C) NO. 31421 OF 2018 WRIT PETITION (CIVIL) NO.1316 OF 2018 WRIT PETITION (CIVIL) NO.1308 OF 2018 WRIT PETITION (CIVIL) NO.1359 OF 2018 TRANSFERRED CASE (CIVIL) NO.65 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1404 OF 2018 WRIT PETITION (CIVIL) NO.1363 OF 2018 WRIT PETITION (CIVIL) NO.1364 OF 2018 WRIT PETITION (CIVIL) NO.1374 OF 2018 TRANSFERRED CASE (CIVIL) NO.71 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1283 OF 2018 TRANSFERRED CASE (CIVIL) NO.73 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1285 OF 2018 TRANSFERRED CASE (CIVIL) NO.72 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1284 OF 2018 TRANSFERRED CASE (CIVIL) NO.75 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1287 OF 2018 TRANSFERRED CASE (CIVIL) NO.76 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1288 OF 2018 TRANSFERRED CASE (CIVIL) NO.74 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1286 OF 2018 TRANSFERRED CASE (CIVIL) NO.70 OF 2018 IN TRANSFER PETITION (CIVIL) NO. 1403 OF 2018 TRANSFERRED CASE (CIVIL) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest payment or any other amount wholly or partly overdue between SMA-0 1-30 days SMA-1 31-60 days SMA-2 61-90 days 3. As provided in terms of the circular DBS.OSMOS.No.14703/33.01.001/2013-14 dated May 22, 2014 and subsequent amendments thereto, lenders shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC) on all borrower entities having aggregate exposure3 of ₹ 50 million and above with them. The CRILC-Main Report will now be required to be submitted on a monthly basis effective April 1, 2018. In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of ₹ 50 million and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday. The first such weekly report shall be submitted for the week ending February 23, 2018. B. Implementation of Resolution Plan 4. All lenders must put in place Board-approved polici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elines for Large Accounts to be Referred under IBC 8. In respect of accounts with aggregate exposure of the lenders at ₹ 20 billion and above, 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)7 within 15 days from the expiry of the said timeline8. xxx xxx xxx 12. For other accounts with aggregate exposure of the lenders below ₹ 20 billion and, at or above ₹ 1 billion, the Reserve Bank intends to announce, over a two-year period, reference dates for im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of power for issuance of the aforesaid circular have been stated to be Section 35A of the Banking Regulation Act read with the Central Government s circular dated 05.05.2017, Sections 35AA and 35AB of the said Act, and Section 45L of the Reserve Bank of India Act, 1934 [ RBI Act ]. It may be stated here that by an order dated 11.09.2018, this Court allowed various transfer petitions and made orders in Writ Petition No. 1086 of 2018, by which it was ordered that status quo as of today shall be maintained in the meantime. As a result, insofar as the petitions and transferred cases in this Court are concerned, the circular has, in effect, been stayed on and from 11.09.2018. 3. The charge on behalf of the petitioners was led by Dr. Abhishek Manu Singhvi, learned Senior Advocate. Dr. Singhvi appears on behalf of the Association of Power Producers, representing the power sector in general. According to the learned Senior Advocate, the Electricity Act, 2003 [ Electricity Act ] was enacted as a complete code to regulate the private sector. According to him, unlike sectors such as the steel and cement sector, the power sector is fully regulated and tariffs that are fixed can only be af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mented on by the 37th and 40th Parliamentary Standing Committee Reports. In so far as the gas-based plants are concerned, the 42nd Parliamentary Standing Committee Report referred to the same tale of woe as in coal based power plants gas, in which the power sector was originally given priority, was later placed in 2013-14 under a no-cut category, leading to drastic reduction in supply of gas to the power sector. Dr. Singhvi also referred to various reports showing that as on October, 2018, DISCOMs only paid INR 8,710 crore against dues of approximately INR 39,500 crore to generating companies. This situation gets exacerbated by delay in adjudication and consequent payment by DISCOMs. He then referred to preferential treatment that is given to power companies in the public sector as opposed to power companies in the private sector, and argued that against total stressed assets of 66,000 MWs in the private sector, stressed assets in the public sector amount to nil. Lack of PPAs being entered into was another cause of concern. Out of the total stressed capacity of 40,130 MWs identified in the 37th Parliamentary Standing Committee Report, PPAs have been executed only for the capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the NCLT will cause a big sacrifice of public money without any benefit to the economy or the power sector. (e) The power sector should be protected since it is going through a transition phase from a low-demand- low-supply situation to a moderately-high-demand situation, which is temporary in nature. 5. Dr. Singhvi then referred to a challenge that was made to the RBI Circular in the Allahabad High Court in Independent Power Producers Association of India v. Union of India and Ors., Writ - C No. 18170 of 2018. He referred to a copy of the order dated 31.05.2018, by which the Allahabad High Court ordered: We request the Secretary, Ministry of Finance, Union of India, to hold a meeting in the month of June, 2018 of respondents 2 to 5 through their Secretaries and a representative of the petitioners association to consider their grievance and see whether any solution to the problem is possible, in the light of observations made by the Thirty-Seventh Report of Standing Committee on Energy presented to Lok Sabha on 7.3.2018 with regard to stressed/non-performing assets in electricity sector. Though, we could not go through the report, our attention was specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t steps be taken by the parties based upon the reports of the High Level Empowered Committee presided over by the Cabinet Secretary. He submitted, the time can be extended at this stage and not once process under IBC is set in motion. He also referred to the fact that a High Level Empowered Committee is to be set up as follows: 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 directions under Section 7 of the RBI Act on the basis of the report and other material, including reports of the Standing Committee within 15 days from today in the light of the observations made in this order. In view thereof, it is not desirable to grant any interim relief at this stage. This shall not preclude the petitioner-Associations or its members from applying for urgent relief, if the circumstances so demand, placing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these may be linked to the plant and not the Promoter. 9. In order to revive gas based power plants, Ministry of Power and Ministry of Petroleum Natural Gas may jointly devise a scheme in line with the earlier e-bid RLNG Scheme (supported by PSDF). Dr. Singhvi, therefore, argued that despite the fact that a representative of the RBI attended meetings of the Parliamentary Standing Committee, the RBI Circular was issued in complete disregard of the recommendations of such Reports, both before and after the impugned circular. According to him, therefore, to apply a 180-day limit to all sectors of the economy without going into the special problems faced by each sector would treat unequals equally and would be arbitrary and discriminatory, and therefore, violative of Article 14 of the Constitution of India. Also, picking up at random all defaults amounting to INR 2000 crore and above, as well as the fact that even a lender whose stake is only 1 per cent can stall a resolution process de hors the Insolvency Code make the circular manifestly arbitrary and violative of Article 14 on this score as well. 8. Apart from the aforesaid submissions, Dr. Singhvi referred in great ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Singhvi. These counsel have appeared in cases involving many other sectors, such as telecom, steel, infrastructure, sports infrastructure, sugar, fertiliser, shipyard, etc. Each of them has highlighted the difficulties faced as a result of Government policies and other reasons for financial stress in all these sectors, which have nothing to do with the efficiency of management of companies operating in these sectors. All of them have adopted the arguments of Dr. Singhvi in stating that, without looking into each individual sector s problems and attempting to solve them, the RBI circular applies down the board to good and bad alike, and, despite the fact that some corporate debtors are on the brink of resolution, the chopper of 180 days comes down on them and they are driven into the Insolvency Code. The Government has recognised that, for example, in the sports infrastructure sector, much larger gestation periods are necessary in which capital infrastructure investments take place and which consequently require long periods for resolution. They have also argued with various nuances of their own as to how the RBI circular is both arbitrary and ultra vires the Banking Regulation Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o time, give such directions to the RBI that it may consider necessary in public interest, after consultation with the Governor of the RBI. The sheet anchor of the petitioners case, therefore, disappears as all these Parliamentary Standing Committee Reports do not take the petitioners anywhere, not having been acted upon either by the Parliament or by the Central Government. This is for the very good reason that ultimately, it is in public interest to either resolve stressed assets within a certain timeframe, or if incapable of such resolution, the route of the Insolvency Code should then be followed. So far as the vires of Sections 35AA and 35AB are concerned, Shri Dwivedi relied upon our recent judgment in Swiss Ribbons Pvt. Ltd. and Anr. v. Union of India and Ors., 2019 (2) SCALE 5 [ Swiss Ribbons ], saying that great leeway must be given to Parliament to deal with the problems which affect the national economy as a whole. There is adequate guiding principle and there is no manifest arbitrariness in any of the aforesaid provisions. Further, there is no question of excessive delegation of power either, as guidance can be obtained from the Preamble of the Banking Regulation Act t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC) The Reserve Bank of India had issued a Press Release on May 22, 2017 outlining the steps taken and those on the anvil pursuant to the promulgation of the Banking Regulation (Amendment) Ordinance, 2017. The Press Release had mentioned inter alia that the RBI would be constituting a Committee comprised majorly of its independent Board Members to advise it in regard to the cases that may be considered for reference for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC). 2. An Internal Advisory Committee (IAC) was accordingly constituted and it held its first meeting on June 12, 2017. The IAC, in the meeting, agreed to focus on large stressed accounts at this stage and accordingly took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system. 3. The IAC also arrived at an objective, non-discretionary criterion for referring accounts for resolution under IBC. In particular, the IAC recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than ₹ 5000 crore, with 60% or more classified as non-performing by banks as of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the banks fail to finalise and implement a viable resolution plan by the said date, banks will be required to file applications under Insolvency Code before 31.12.2017. The IAC noted that applying this criterion will cover 29 NPA accounts, with total outstanding of INR 135,846 crore and total fund-based NPAs of INR 111,848 crore as on 30.06.2017. It is pertinent to note that on 28.08.2017, the RBI issued a letter directing banks to attempt resolution of the accounts in this Second List by 13.12.2017. As regards the residual accounts, out of the initially identified 71 NPA accounts, the IAC recommended that such accounts may be addressed through a steady-state framework for resolution of stressed assets in a time-bound manner and failing such resolution, the accounts be referred to for resolution under the Insolvency Code. Accordingly, the RBI formulated and issued the revised framework vide its circular dated 12.02.2018. 15. Meanwhile, the Ministry of Finance issued a notification dated 05.05.2017 under Section 35AA as follows: MINISTRY OF FINANCE (Department of Financial Services) ORDER New Delhi, the 5th May, 2017 S.O. 1435(E).―In exercise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us schemes for timely resolution of stressed assets. (emphasis supplied) The Banking Regulation (Amendment) Ordinance, 2017 was then enacted as follows: MINISTRY OF LAW AND JUSTICE 4th May, 2017 An Ordinance further to amend the Banking Regulation Act, 1949. WHEREAS the stressed assets in the banking system have reached unacceptably high levels and urgent measures are required for their resolution; AND WHEREAS the Insolvency and Bankruptcy Coe, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders; AND WHEREAS the provisions of Insolvency and Bankruptcy Code, 2016 can be effectively used for the resolution of stressed assets by empowering the banking regulator to issue directions in specific cases; AND WHEREAS Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action; NOW, THEREFORE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident 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 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. xxx xxx xxx 14th July, 2017. (emphasis supplied) Sections 35AA and 35AB were then legislatively introduced as follows: THE BANKING REGULATION (AMENDMENT) ACT, 2017 xxx xxx xxx [25th August, 2017] 2. In the Banking Regulation Act, 1949 (herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate legislation made under it. This process is an ongoing process which involves all stakeholders, including the petitioners. It is in this background that legislation affecting the economy is to be viewed. This Court, in Shayara Bano v. Union of India, (2017) 9 SCC 1 has made it clear that Article 14 may be infracted by legislation on the ground of such legislation being manifestly arbitrary. This Court has said in this behalf: 101. It will be noticed that a Constitution Bench of this Court in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India [Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC 641 : 1985 SCC (Tax) 121] stated that it was settled law that subordinate legislation can be challenged on any of the grounds available for challenge against plenary legislation. This being the case, there is no rational distinction between the two types of legislation when it comes to this ground of challenge under Article 14. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porary Powers) Act, 1946, amounts to delegation of legislative power outside the permissible limits is again without any merit. It was settled by the majority judgment in the Delhi Laws Act case [1951 SCR 747] that essential powers of legislature cannot be delegated. In other words, the legislature cannot delegate its function of laying down legislative policy in respect of a measure and its formulation as a rule of conduct. The legislature must declare the policy of the law and the legal principles which are to control any given cases and must provide a standard to guide the officials or the body in power to execute the law. The essential legislative function consists in the determination or choice of the legislative policy and of formally enacting that policy into a binding rule of conduct. In the present case the legislature has laid down such a principle and that principle is the maintenance or increase in supply of essential commodities and of securing equitable distribution and availability at fair prices. The principle is clear and offers sufficient guidance to the Central Government in exercising its powers under Section 3. Delegation of the kind mentioned in Section 3 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is not permissible to substitute in the matter of legislative policy the views of individual officers or other authorities, however competent they may be, for that of the popular will as expressed by the representatives of the people. As observed on p. 224 of Vol. I in Cooley s Constitutional Limitations 8th Edn.: One of the settled maxims in constitutional law is, that the power conferred upon the Legislature to make laws cannot be delegated by that department to any other body or authority. Where the sovereign power of the State has located the authority, there it must remain; and by the constitutional agency alone the laws must be made until the Constitution itself is changed. The power to whose judgment, wisdom, and patriotism this high prerogative has been entrusted cannot relieve itself of the responsibility by choosing other agencies upon which the power shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other body for those to which alone the people have seen fit to confide this sovereign trust. xxx xxx xxx 15. The Constitution, as observed by this Court in the case of Devi Das Gopal Krishnan v. State of Punjab [AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the determination of the legislative policy and its formulation as a binding rule of conduct. Thus where the law passed by the legislature declares the legislative policy and lays down the standard which is enacted into a rule of law, it can leave the task of subordinate legislation like the making of rules, regulations or by-laws which by its very nature is ancillary to the statute to subordinate bodies. The subordinate authority must do so within the framework of the law which makes the delegation, and such subordinate legislation has to be consistent with the law under which it is made and cannot go beyond the limits of the policy and standard laid down in the law. As long as the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere with the discretion that undoubtedly rests with the Legislature itself in determining the extent of delegation necessary in a particular case [see observations of Wanchoo, C.J., in Municipal Corporation of Delhi v. Birla Mills.]. 18. In Harishankar Bagla v. State of Madhya Pradesh [AIR 1954 SC 465 : (1955) 1 SCR 380 : 1954 Cri LJ 1322] this Court dealt with the validity of claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise, for lending or investment: xxx xxx xxx (x) Empowering the Central Government to take action against banks conducting their affairs in a manner detrimental to the interests of the depositors; (xi) Provision for bringing the Reserve Bank of India into closer touch with banking companies; xxx xxx xxx (xiv) Widening the powers of the Reserve Bank of India so as to enable it to come to the aid of banking companies in times of emergency; xxx xxx xxx Sections 14A, 17, 18, and 20 impose various restrictions on a banking company. Thus, it is prohibited from having a floating charge on assets; it has to maintain a reserve fund, and a cash reserve; and it cannot grant loans and advances on the security of its own shares, or on behalf of its directors, or any firm in which its directors are interested etc. A banking company is obligated to hold a license that is issued by the RBI, by which the RBI can impose such conditions as it thinks fit under Section 22 of the Act. Section 22(3), in particular, gives guidance as to how the banking company will run its business. These and other regulatory sections such as Sections 25, 29, 30, and 31, all give guidanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a Legislature to the meaning attributable to the word used at the time the law was made, for a modern Legislature making laws to govern a society which is fast moving must be presumed to be aware of an enlarged meaning the same concept might attract with the march of time and with the revolutionary changes brought about in social, economic, political and scientific and other fields of human activity. Indeed, unless a contrary intention appears, an interpretation should be given to the words used to take in new facts and situations, if the words are capable of comprehending them. We cannot, therefore, agree with the learned Judges of the High Court that the maxim contemporanea expositio could be invoked in construing the word telegraph line in the Act. For the said reasons, we hold that the expression telegraph line is sufficiently comprehensive to take in the wires used for the purpose of the apparatus of the Post and Telegraph Wireless Station. (at pp. 156-157) (emphasis supplied) 20. Guidance on whether a statute can apply to new situations not in contemplation of Parliament when the statute was enacted was felicitously set out by Lord Wilberforce in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be traced back to the Law of Libel Amendment Act 1888. He observed that at that time the phenomenon of press conferences was unknown. This was an invitation to the House to say that press conferences could not have been within the original intent of the legislature. There is a clear answer to this appeal to Victorian history. Unless they reveal a contrary intention all statutes are to be interpreted as always speaking statutes . This principle was stated and explained in R v Ireland, R v Burstow [1997] 4 All ER 225 at 233, [1998] AC 147 at 158. There are at least two strands covered by this principle. The first is that courts must interpret and apply a statute to the world as it exists today. That is the basis of the decision in R v Ireland where bodily harm in a Victorian statute was held to cover psychiatric injury. Equally important is the second strand, namely that the statute must be interpreted in the light of the legal system as it exists today. In the classic work of Sir Rupert Cross, Statutory Interpretation (3rd edn, 1995) pp 51-52, the position is explained as follows: The somewhat quaint statement that a statute is always speaking appears to have originat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with advancing knowledge, technology or social standards, it should be interpreted as it would be currently understood. The content may change but the concept remains the same. The meaning of the statutory language remains unaltered. So the concept of a vehicle has the same meaning today as it did in 1800, even though it includes methods of conveyance which would not have been imagined by a legislator of those days. The same is true of social standards. The concept of cruelty is the same today as it was when the Bill of Rights 1688 (1 Will Mary, sess 2, c 2) forbade the infliction of cruel and unusual punishments (section 10). But changes in social standards mean that punishments which would not have been regarded as cruel in 1688 will be so regarded today. This doctrine does not however mean that one can construe the language of an old statute to mean something conceptually different from what the contemporary evidence shows that Parliament must have intended. So, for example, in the recent case of Goodes v East Sussex County Council [2000] 3 All ER 603, [2000] 1 WLR 1356, the House of Lords decided that the statutory duty of highway authorities to maintain the highw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nothing in the aforesaid provision which would indicate that the power of the RBI to give directions, when it comes to the Insolvency Code, cannot be so given. The width of the language used in the provision which only uses general words such as public interest and banking policy etc. makes it clear that if otherwise available, we cannot interdict the use of Section 35A as a source of power for the impugned RBI circular on the ground that the Insolvency Code, 2016 could not be said to have been in the contemplation of Parliament in 1956, when Section 35A was enacted. Dr. Singhvi s contention must, therefore, fail. 25. Dr. Singhvi then relied upon the judgment in Indian Banks Association (supra). In this case, the power of the RBI under Section 35A of the Banking Regulation Act was held not to extend to granting approval to banks under a separate and distinct enactment, namely, the Interest Tax Act, 1974. In this context, this Court held: 37. The submission of the learned counsel for the appellants to the effect that they had been permitted to enhance the rate of interest by the Reserve Bank of India, is equally misconceived. The Reserve Bank of India apparently proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the RBI cannot possibly give directions as to how the banks must exercise their discretionary power before filing applications under Section 7 of the Insolvency Code. Shri Dwivedi, however, distinguished this judgment by stating that this was a tax case and it must be remembered that the entries in the Seventh Schedule qua taxation are separate from general entries. Even otherwise, according to Shri Dwivedi, the RBI directions are at a stage anterior to the application of the provisions of the Insolvency Code, as a result of which, this judgment would have no application. 26. We are of the view that Shri Dwivedi is right. If a specific provision of the Banking Regulation Act makes it clear that the RBI has a specific power to direct banks to move under the Insolvency Code against debtors in certain specified circumstances, it cannot be said that they would be acting outside the four corners of the statutes which govern them, namely, the RBI Act and the Banking Regulation Act. On this score, therefore, Dr. Singhvi s contention must fail. 27. Shri Dwivedi has cited certain judgments stating that discretionary powers given to the RBI under the Banking Regulation Act gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other overheads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of accounts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a few incident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bank of India have statutory force and, thus, can be termed as law in force. (See also Corporation Bank v. D.S. Gowda [(1994) 5 SCC 213] and Central Bank of India v. Ravindra [(2002) 1 SCC 367].) All public sector banks are bound thereby. Also, in ICICI Bank Ltd. v. APS Star Industries Ltd., (2010) 10 SCC 1, this Court, when it came to whether derivatives could be a business which banks could do, stated with respect to Sections 21 and 35A of the RBI Act as follows: 35. Section 21 deals with the power of RBI to control advances by banking companies. Section 21 empowers RBI to frame policies in relation to advances to be followed by banking companies. It further says that once such policy is made all banking companies shall be bound to follow them. Section 21(1) is once again a general provision empowering RBI to determine policy in relation to advances whereas Section 21(2) empowers RBI to give directions to banking companies as to items mentioned there i.e. in Section 21(2). Under Section 21(3) every banking company is bound to comply with directions given by RBI at the peril of penalty being levied for non-compliance. Section 35-A says that where RBI is satisfied that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it comes to initiating the insolvency resolution process under the provisions of the Insolvency Code. The first thing to be noted is that without such authorisation, the RBI would have no such power. There are many sections in the Banking Regulation Act which enumerate the powers of the Central Government vis- -vis the powers of the RBI. Thus, Section 36ACA(1) provides as follows: 36ACA. Supersession of Board of Directors in certain cases.-(1) Where the Reserve Bank is satisfied, in consultation with the Central Government, that in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such banking company for a period not exceeding six months as may be specified in the order: Provided that the period of supersession of the Board of Directors may be extended from time to time, so, however, that the total period shall not exceed twelve months. xxx xxx xxx Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , make a scheme for carrying out the purposes of this Part in relation to any acquired bank. xxx xxx xxx Under Section 45Y, the Central Government may after consulting the RBI make rules for preservation of records as follows: 45Y. Power of Central Government to make rules for the preservation of records.-The Central Government may, after consultation with the Reserve Bank and by notification in the Official Gazette, make rules specifying the periods for which- (a) a banking company shall preserve its books, accounts and other documents; and (b) a banking company shall preserve and keep with itself different instruments paid by it. Under Section 52(1), the Central Government may, after consultation with the RBI, make rules to give effect to the provisions of the Act as follows: 52. Power of Central Government to make rules.- (1) The Central Government may, after consultation with the Reserve Bank, make rules to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act and all such rules shall be published in the Official Gazette. xxx xxx xxx Importantly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule in Taylor v. Taylor, [1875] 1 Ch. D. 426, which has been repeatedly followed by this Court. Thus, in State of U.P. v. Singhara Singh, (1964) 4 SCR 485, this Court held: The rule adopted in Taylor v. Taylor [(1875) 1 Ch D 426, 431] is well recognised and is founded on sound principle. Its result is that if a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The principle behind the rule is that if this were not so, the statutory provision might as well not have been enacted. A Magistrate, therefore, cannot in the course of investigation record a confession except in the manner laid down in Section 164. The power to record the confession had obviously been given so that the confession might be proved by the record of it made in the manner laid down. If proof of the confession by other means was permissible, the whole provision of Section 164 including the safeguards contained in it for the protection of accused persons would be rendered nugatory. The section, therefore, by conferring on Magistrates the power t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason for a statute is the safest guide to its interpretation. The words of a statute take their colour from the reason for it. How do we discover the reason for a statute? There are external and internal aids. The external aids are Statement of Objects and Reasons when the Bill is presented to Parliament, the reports of committees which preceded the Bill and the reports of Parliamentary Committees. Occasional excursions into the debates of Parliament are permitted. Internal aids are the preamble, the scheme and the provisions of the Act. Having discovered the reason for the statute and so having set the sail to the wind, the interpreter may proceed ahead. No provision in the statute and no word of the statute may be construed in isolation. Every provision and every word must be looked at generally before any provision or word is attempted to be construed. The setting and the pattern are important. It is again important to remember that Parliament does not waste its breath unnecessarily. Just as Parliament is not expected to use unnecessary expressions, Parliament is also not expected to express itself unnecessarily. Even as Parliament does not use any word without meaning somethi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Section was to be read as additional to other powers granted by Sections 35A and 35AA. This Court, in Bharat Sanchar Nigam Ltd. v. Telecom Regulatory Authority of India and Ors., (2014) 3 SCC 222, at paragraphs 90 to 97, has indicated that the words without prejudice appearing in a Section make it clear that powers that are enumerated are only illustrative of a general power and do not restrict such general power. Indeed, in Union of India and Anr. v. Pfizer Ltd. and Ors., (2018) 2 SCC 39, this Court held: 14. Having heard the learned counsel for the parties, it is clear that Section 26-A has been introduced by an amendment in 1982. A bare reading of this provision would show, firstly, that it is without prejudice to any other provision contained in this Chapter (meaning thereby Chapter IV). This expression only means that apart from the Central Government's other powers contained in Chapter IV, Section 26-A is an additional power which must be governed by its own terms. Under Section 26-A, the Central Government must be satisfied that any drug or cosmetic is likely to involve (i) any risk to human beings or families; or (ii) that any drug does not have the thera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen waylaid by the literal interpretation rule laid down by the Privy Council and the House of Lords in the mid-1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637]. This judgment has since been followed by this Court in ArcelorMittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 [at paragraph 29]; Asian Resurfacing of Road Agency (P) Ltd. v. Central Bureau of Investigation, (2018) 16 SCC 299 [at paragraph 51.5]; Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 [at paragraphs 27 and 30]; State (NCT of Delhi) v. Brijesh Singh, (2017) 10 SCC 779 [at paragraph 13]. 38. The Press Note dated 05.05.2017, set out supra, explained the new Sections 35AA and 35AB as the grant of two distinct and separate powers. Section 35AA has been inserted to resolve specific stressed assets by initiating insolvency resolution process where required . On the other hand, Section 35AB has been enacted so that the RBI has also been empowered to issue other directions for resolution It is significant that Section 35AA is enacted exactly as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument. This suggestion does not find support in either principle or authority. The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and Judges but springs from the common understanding of men and women that when the same person gives two directions one covering a large number of matters in general and another to only some of them his intention is that these latter directions should prevail as regards these while as regards all the rest the earlier direction should have effect. In Pretty v. Solly (quoted in Craies on Statute Law at p.m. 206, 6th Edn.) Romilly, M.R., mentioned the rule thus: The rule is, that whenever there is a particular enactment and a general enactment in the same statute and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply . The rule has been applied as between different provisions of the same statute in numerous cases some of which only need be mentioned: De Winton v. Brecon [28 LJ Ch 598], Churchill v. Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means a corporate person who owes a debt to any person; xxx xxx xxx A reading of these definitions would make it clear that default would mean non- payment of a debt when it has become due and payable and is not paid by the corporate debtor. Therefore, what is important to note is that it is a particular default of a particular debtor that is the subject matter of Section 35AA. It must also be observed that the expression issue directions to banking companies generally or to any banking company in particular occurring in Section 35A is conspicuous by its absence in Section 35AA. This is another good reason as to why Section 35AA refers only to specific cases of default and not to the issuance of directions to banking companies generally, as has been done by the impugned circular. 42. This is clear also from the Press Note dated 05.05.2017, which introduced the Ordinance which specifically referred to resolution of specific stressed assets which will empower the RBI to intervene in specific cases of resolution of NPAs. The Statement of Objects and Reasons for introducing Section 35AA also emphasises that directions are in respect of a default . Thus, it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section, as opposed to a category or Chapter which contains various Sections. This judgment, therefore, directly militates against the submission of Shri Dwivedi in this behalf. 44. Shri Dwivedi then relied upon Section 13 of the General Clauses Act, 1897 [ General Clauses Act ] to state that the singular would include the plural. There is no doubt whatsoever that this would be so unless the context otherwise requires, as is provided by Section 13 of the General Clauses Act itself. In the present case, the context of Section 35AA makes it clear, as has been correctly argued by Shri Tushar Mehta, learned Solicitor General, that the power to be exercised under the authorisation of the Central Government requires due deliberation and care to refer to specific defaults. This argument also does not take Shri Dwivedi very much further. 45. The impugned circular states as one of its sources, the power contained in Section 45L of the RBI Act insofar as non-banking financial institutions are concerned. Non-banking financial institutions are referred to in Section 45-I(c) as follows: 45-I. Definitions.-In this Chapter, unless the context otherwise requires,- xxx xxx xxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al institution in particular, to furnish to the Bank in such form, at such intervals and within such time, such statements, information or particulars relating to the business of such financial institutions or institution, as may be specified by the Bank by general or special order; (b) give to such institutions either generally or to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions or institution. (2) Without prejudice to the generality of the power vested in the Bank under clause (a) of sub-section (1), the statements, information or particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided. (3) In issuing directions to any financial institution under clause (b) of sub-section (1), the Bank shall have due regard to the conditions in which, and the objects f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. For revolving facilities like cash credit, default would also mean, without prejudice to the above, the outstanding balance remaining continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than 30 days. 3 Aggregate exposure under the guidelines would include all fund based and non-fund based exposure with the lenders. 4 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 Annex-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. 5 The residual debt of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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