All IBC cases affacted by RBI circular now stand cancelled

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IBC cases, Insolvency and Bankruptcy Code, National Company Law Tribunal, resolution plan, controversial RBI circular, apex bank circular,

As the Supreme Court on Tuesday struck down the Reserve Bank of India’s February 12, 2018, order on non-performing assets, all cases referred to or admitted under the Insolvency and Bankruptcy Code (IBC) due to the RBI order would now be cancelled, legal experts said.

The apex court on Tuesday struck down the controversial RBI circular mandating resolution of loans of Rs 2,000 crore and above even for a single day as ultra vires.

“We have declared RBI circular ultra vires,” said Justice Rohinton Fali Nariman pronouncing the judgement on a batch of petitions by the industries — power, fertiliser and sugar — challenging February 12, 2018 apex bank circular.

Last year 34 power companies were declared stressed by the standing committee on energy, and some of them were referred for insolvency under the new bankruptcy code as per the RBI circular.

“After the Supreme Court order, all the companies either referred or admitted for the resolution process, whichever stage of the proceedings they are, would be treated as they were never referred for insolvency,” said Punit Tyagi, Executive Partner at the law firm Lakshmikumaran & Sridharan.

Apart from the power sector, the decision would also benefit several other sectors including, sugar, shipping that are also facing stress and those companies, which were facing difficulties in honouring their loan commitments.

However, power companies, including 34 stressed projects with a capacity of about 40,000 MW would be the biggest beneficiary as it now provides both banks and power generators with more time to resolve debt.A

Power companies, including Essar Power, GMR Energy, KSK Energy, and Rattan India Power, as well as The Association of Power Producers (APP) and Independent Power Producers Association of India (IPPAI) had in August moved the top court, challenging the constitutional validity of the February 12 circular of the RBI.

The power sector had contended that they were not wilful defaulters and were facing sectoral and market issues, including non-availability of fuel and power purchase agreement (PPAs) and non-payment by state utility issues. This hampered their ability to generate revenue and maintain their loan repayment schedule with banks.

The February 12, 2018 RBI circular 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 (NCLT).

The RBI in this circular had allowed 180 days for debt resolution, failing which the asset would have to be taken to NCLT for initiation of insolvency against them. The deadline got over on August 31, 2018.