The Supreme Court on Tuesday invalidated a circular issued by the apex bank that had set strict norms for resolving of problem of bad loans and easing the concerns of some debt-laden companie.
A two judge-bench comprising of justices Rohinton F Nariman and Vineet Saran had stated that the Reserve Bank of India (RBI) while issuing the 12 February 2018 circular, acted beyond its powers. “We have declared the RBI circular ultra vires”, Nariman clearly stated.
The RBI circular had directed banks to refer the defaulters to bankruptcy courts if they were unable to find a resolution plan within 180 days for their stressed accounts where the outstanding amount was exceeding Rs 2,000 crore.
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However, Supreme Court judgement on Tuesday said that the Regulation Act allows banks to initiate insolvency when there is an authorisation from Central Government or when the RBI gives directions for specific default cases. “There was nothing to show that these provisions were satisfied in issuing the circular”, Supreme Court said. It also clearly stated that the central bank does not have the authority to issue general directions regarding bankruptcy cases.
There is no clarity as to if RBI will come up with a fresh policy for banks to tackle the mounting bad debts. It is expected that RBI may throw some light on its plans when it will announce the monetary policy on April 4.
The latest order by the Supreme Court came as a relief at least for the time being, to many corporate defaulters, saving them from having to submit to a time-bound insolvency process.