RBI Feb 12 circular ignores differences: Firms to SC

The Reserve Bank of India’s (RBI’s) February 12, 2018 circular, which asked banks to move insolvency petitions against large nonperforming assets that had not been resolved, is based on a ‘one-size-fits-all’ approach without taking into consideration factors such as the reasons for nonpayment, power companies told the Supreme Court on Wednesday.

The Reserve Bank of India’s (RBI’s) February 12, 2018, circular asking banks to move insolvency petitions against large non-performing assets (NPAs) that had not been resolved is based on a ‘one size fits all’ approach without taking into consideration factors such as reasons for non-payment, power companies told the Supreme Court on Wednesday.

There is no distinction between the kinds of debtors, the reasons for non-payment of debt or consideration for external factors influencing the sector, senior advocate Abhishek Manu Singhvi, appearing for one of the power companies, told the court.

The discretionary power of banks to decide whether an account would turn NPA or not had also been taken away by the RBI owing to the circular, he said.

A two-judge Bench of Justices Rohinton Fali Nariman and Vineet Saran is hearing a slew of petitions moved by power, sugar, and shipping companies challenging the RBI’s February 12 circular.

On February 12 last year, the RBI had asked banks and other lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against them in the National Company Law Tribunal.

Essar Power, GMR Energy, KSK Energy, and Rattan India Power, as well as Association of Power Producers and Independent Power Producers Association of India, had, in August, moved the top court after the Allahabad High Court had rejected their plea.

Citing that in their case, the supply side as well as the demand side was under the watchful eye of the regulators, the power companies on Wednesday said that the sector should have been exempted from the RBI’s diktat.

“On the supply side, there is shortage of coal. How do I get coal? And if I get coal, whether I will get linkages or not is another question. On the demand side, I cannot increase my tariff. Even if I approach the regulator to seek permission to do the same, it would take at least two-three years,” the counsel appearing for one of the power companies told the court.

Even within the power sector, there was a huge difference between the condition of public and private companies as the dues of the latter were not cleared on time by states and power distribution companies (discoms) on time, he said.

The apex court is scheduled to resume hearing the companies on Thursday. It is hearing these petitions by dividing them into three categories. There are some companies that have challenged the validity of the Insolvency and Bankruptcy Code. The second group of companies has challenged the constitutional validity of the circular, and the third group, which consists mostly of power companies, has sought temporary relief from the circular only for themselves.