For a legal novice like me, the Supreme Court judgments are
opportunities to add to my vocabulary of English. Three that I came across
recently for the first time are “manifest arbitrariness”,
“speaking statutes” and “de Hors”.
Fortunately, as with all the SC judgments that I have come
across, my lack of lexicon does not hinder my appreciation of the final “Orders”.
So I am clear that in a recent Order
the Court judged that the RBI did not have the “authority” to set out a “procedure”
for bringing delinquent accounts in excess of Rs 2000 cr. under the ambit of the
IBC. This procedure was highlighted in an RBI Circular dated 12FEB2018. The RBI
has claimed its powers to issue this Circular as coming under Section 35A of
the Banking Regulation Act (BR Act). The Supreme Court, pointed out that a sub
section under this Section (Section 35AA) , actually stipulates that only the
Central Government could direct the RBI to refer matters in respect of specific accounts to the taken up under the IBC. The Court was clear
that that the RBI could not under this section pass “general” directives. All cases referred to the IBC based on this
Circular was, therefore, null and void (“non est.” another new word for me)
As with any judgment there would
be opinions galore and I am not about to share my views on it. My take is on three
issues
ISSUE 1:
What of the cases referred by the Banks under the IBC, not on the basis of the
RBI Circular, but on their own
volition? To me it seems that they are not touched- and so we hard working IPs
are not yet out of a vocation! Its business as usual …
ISSUE 2:
What was the motivation for the
Centre to bring in Section 35AA in the first instance? The Code is driven by two
major objectives of:
(1) Resolving defaults primarily through
finding resolutions for continuing operations- with liquidation being a last
resort
And
(2) Ensuring
this is speedily effected within a reasonable time frame.
The Counsel for the RBI informed
the Court that when the Centre inserted (through an Ordinance no less!) the Sub
Section, they had no intention of curbing the powers of the RBI. The Counsel
quoted verbatim the Finance Minister on this point. The Court, however, was not
impressed – that’s where I learnt about speaking statutes.
The large delinquent accounts
have large Corporates behind them. Large Corporates have tenuous and powerful networks to protect their interests. If the 12FEB18 Circular of the RBI was found to be
valid by the Supreme Court , each and every account would have to come before
the IBC , if no resolution is found within 180 days of the first default. And
we all know what happens thereafter- the existing Promoters are not permitted to put up a Resolution
Plan. Mercifully the Court Order has released them from this Damocles sword. They can now work through the corridors of the
bureaucracy and the political hierarchy and prevent any reference for years to
come. This affects the prospects of Banks, who are repositories of public deposits.
The Counsel for the RBI stressed before the Court that the BR Act was to
empower the RBI to pass directives in the (1) public interest, (2) in the interest
of banking policy and (3) in the interest of depositors. The Court whilst
defending the constitutional validity of the BR Act and the Circular was
concerned with the violation of the specific Sub Section 35AA.
ISSUE 3:
180 days… As any Banker would vouch,
it takes a few hours to arrive at what is wrong with an Account. Add a few more
days, and a serious banker can come up with the causes of a default and the
possible remedial measures. I found it so painful to read of the SBI and the REC,
two financial behemoths stating before a Parliamentary Committee that 180 days
is just not enough to come up with a solution. Instead of being strong proponents
of a shorter time bound resolution, it is sad to note these Institutions
seeking more time. They undermine the very purpose of the IBC. Currently in the
JET Airways case, we see the same SBI proactively attempting at a quick
resolution, knowing that any period as long as 180 days would only worsen the
situation. I do hope the RBI and the Ministry of Finance and the IBBI would not
give credence to these statements of the two Institutions.
+++ 06APR19
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