If the banks
could not come out with a resolution plan for corporate defaulters owing over Rs 20 billion each within 180 days of the circular, the lender would have to file for insolvency proceedings within 15 days of the expiry of the deadline. The 15-day period ended on Tuesday.
“It is not clear if the resolution plans already put in motion before Tuesday will be impacted by the SC’s order,” said a senior public sector bank executive.
Two other bankers said they would approach the central bank to provide a solution on the way forward with the insolvency cases. Banks
have identified around 70 stressed corporates as NPAs since the circular was published.
But only nine of the 34 stressed power assets were nearing resolution outside of the insolvency process. Babu Sivaprakasam, partner at Economic Laws Practice, told Business Standard, “Since some of these petitions have been filed by industry associations, it is a representative petition and therefore all member companies of the association may benefit from the SC’s recent order, though they are not directly a party.”
“Unfortunately, the ambit of maintenance of status quo, whether it applies in entirety to the RBI circular or only to some sections of the circular, requires clarity. It would depend on the specific pleas made by the petitioners before various high courts,” he said.
Legal experts say the intervention by the SC provides relief to bankers as well as to the stressed corporates as they now have time to finalise resolution plans before the next hearing.
Simranjeet Singh, advocate and partner at Athena Legal, said, “The SC order transfers the five petitions that were pending before the Madras, Allahabad, Ahmedabad and Delhi high courts. Therefore, it is only giving limited relief and is ordering the status quo in only these five petitions and not generally to all corporate debtors going to the NCLT.” However, other stressed corporates that were affected by the RBI’s circular will now have the opportunity to ask the SC to include their pleas under the present case, he said. In its order, the SC has said that there would be a “status quo” on both the transfer petition filed by RBI and also on a writ petition that was filed by Ideal Energy Projects challenging the RBI’s transfer petition.
The confusion in the banking system has arisen because these two cases have been referred to in the SC’s ruling.
The usage of the term “status quo” has given rise to confusion. The central bank's legal team is presently debating the case and may take the help of empanelled legal experts, a source said.
Any clarity on this would emerge only in the next week, however, it won't be communicated to outside, as the matter is sub judice, the source said.
Sivaprakasam clarified some of the confusion that has arisen on the applicability of the order stating that: “If a lender has previously filed an insolvency case against the petitioners which was not admitted by NCLT before the SC order, then the tribunal may have to maintain the current status till the SC gives further directions. In case a corporate debtor has been admitted under the IBC, and corporate insolvency and resolution process (CIRP) has been initiated then the resolution process may continue.”
This means that if the committee of creditors to a stressed corporate under the IBC is due to meet, in all likelihood they will be allowed to continue meeting, but all decisions they take can only be approved by the adjudicating authority (NCLT) post the SC’s hearing, legal sources clarified.
Further, any party can continue and file fresh petitions with the NCLT against a corporate debtor under the IBC, but this would have to be considered on their own merits. “That no fresh filings under IBC can be made by the bankers against any corporate debtor until next hearing may not be the intention of the SC’s order and would definitely be far-fetched. The petitioners and their members although may take such shield,” adds Sivaprakasam. The net effect is that another 60 days of time has been given for finding a resolution of these corporate debtors.
Depending upon the RBI's interpretation of the SC’s order, the banks
named in the writ petition, namely Punjab National Bank, Bank of Baroda, Canara Bank, Corporation Bank and Union Bank of India, may want to seek clarification from the SC about the ruling, the source cited above said.
With inputs from Anup Roy