High Court to hear insolvency cases in power sector, says Supreme Court

RBI took a tough stance against a special dispensation to the power industry, saying this would invite similar representations from other sectors and lead to more litigation
The Supreme Court did not agree to a plea for staying the hearing, scheduled for this Thursday, in the Allahabad High Court (HC) on the Reserve Bank of India’s (RBI’s) bankruptcy proceedings on stressed power sector assets.

 

Saying the hearing had progressed to a mature level, the two-judge SC bench headed by Justice Rohinton F Nariman turned down the request, from the RBI, to halt the HC process.

 

The RBI in a circular dated February 12 had mandated banks to classify even one day’s delay in debt servicing as default. Resolution proceedings on stressed accounts were to be completed in 180 days.

 

On a petition against this by the Independent Power Producers Association of India, the HC had directed the Union finance ministry to meet stakeholders in the sector and work on a possible solution within a month. The ministry did so, along with officials of the ministries of coal and power, and an RBI representative, on June 21.

 

In July, the central government had told the HC it wanted regulatory relief and time extension for close to a dozen power projects with debt exposure of around Rs 1 trillion, of a total of 34 stressed assets in the segment.

 

Also, in a report given to Parliament on Tuesday, Standing Committee on Energy has asked for “all out efforts” from stakeholders to see that a “genuine initiative is taken for resolution of stress”.

 

The report says the RBI did not consider the issues in the power sector while issuing a blanket clause in its February 12 order. “The RBI framework is ignorant of, as well as unmindful of, the prevailing reality of the electricity sector and that is why it addresses only the financial issues, ignoring the whole range of vital issues of the sector.”

 

The Union power ministry had requested  the RBI, in a submission to the HC, to also increase the resolution period. It had suggested two schemes for resolution of  financial stress in the sector. The first, termed SAMADHAN, came from State Bank of India and Power Finance Corporation, two institutions with the highest exposure to the power sector. The other was termed PARIWARTAN, from Rural Electrification Corporation.

 

It suggested setting up of an ‘Asset Restructuring Company (ARC)’. SAMADHAN entails identifying 10 assets and taking over ‘sustainable debt’; thereafter, selling the asset to some ARC. RBI, however, took a tough stance against a special dispensation to the power industry, saying this would invite similar representations from other sectors and lead to  more litigation. The solution, it has told the HC, does not lie in “trying to mask the problem or compromising risk recognition and prudence”.