R.F.NARIMAN,J. - (1.) The present batch of petitions and transferred cases raise questions as to the constitutional validity of Sections 35AA and 35AB of the Banking Regulation Act, 1949 [" Banking Regulation Act "] introduced by way of amendment w.e.f. 04.05.2017. The real bone of contention is a Reserve Bank of India ["RBI"] Circular issued on 12.02.2018, by which the RBI promulgated a revised framework for resolution of stressed assets. The important clauses of the aforesaid circular are set out hereinbelow: "Resolution of Stressed Assets - Revised Framework 1. The Reserve Bank of India has issued various instructions aimed at resolution of stressed assets in the economy, including introduction of certain specific schemes at different points of time. In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets. The details of the revised framework are elaborated in the following paragraphs. I. Revised Framework A. Early identification and reporting of stress 2. Lenders1 shall identify incipient stress in loan accounts, immediately on default2, by classifying stressed assets as special mention accounts (SMA) as per the following categories: JUDGEMENT_15_LAWS(SC)4_2019_1.jpg 3. As provided in terms of the circular DBS.OSMOS.No.14703/33.01.001/2013-14 dated May 22, 2014 and subsequent amendments thereto, lenders shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC) on all borrower entities having 1 Lenders under these guidelines would generally include all scheduled commercial banks (excluding RRBs) and All India Financial Institutions, unless specified otherwise. 2 'Default' means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. For revolving facilities like cash credit, default would also mean, without prejudice to the above, the outstanding balance remaining continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than 30 days. aggregate exposure3 of ? 50 million and above with them. The CRILC-Main Report will now be required to be submitted on a monthly basis effective April 1, 2018. In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of ? 50 million and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday. The first such weekly report shall be submitted for the week ending February 23, 2018. B. Implementation of Resolution Plan 4. All lenders must put in place Board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default. The resolution plan (RP) may involve any actions / plans / reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring4. The RP shall be clearly documented by all the lenders (even if there is no change in any terms and conditions). C. Implementation Conditions for RP 5. A RP in respect of borrower entities to whom the lenders continue to have credit exposure, shall be deemed to be 'implemented' only if the following conditions are met: a. the borrower entity is no longer in default with any of the lenders; 3 Aggregate exposure under the guidelines would include all fund based and non-fund based exposure with the lenders. 4 Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower's financial difficulty (An illustrative non-exhaustive list of indicators of financial difficulty are given in the Appendix to Annex-I), grants concessions to the borrower. Restructuring would normally involve modification of terms of the advances / securities, which may include, among others, alteration of repayment period / repayable amount / the amount of instalments / rate of interest; roll over of credit facilities; sanction of additional credit facility; enhancement of existing credit limits; and, compromise settlements where time for payment of settlement amount exceeds three months. b. if the resolution involves restructuring; then i. all related documentation, including execution of necessary agreements between lenders and borrower / creation of security charge / perfection of securities are completed by all lenders; and ii. the new capital structure and/or changes in the terms of conditions of the existing loans get duly reflected in the books of all the lenders and the borrower. 6. Additionally, RPs involving restructuring / change in ownership in respect of 'large' accounts (i.e., accounts where the aggregate exposure of lenders is ? 1 billion and above), shall require independent credit evaluation (ICE) of the residual debt5 by credit rating agencies (CRAs) specifically authorised by the Reserve Bank for this purpose. While accounts with aggregate exposure of ? 5 billion and above shall require two such ICEs, others shall require one ICE. Only such RPs which receive a credit opinion of RP46 or better for the residual debt from one or two CRAs, as the case may be, shall be considered for implementation. Further, ICEs shall be subject to the following: a. The CRAs shall be directly engaged by the lenders and the payment of fee for such assignments shall be made by the lenders. b. If lenders obtain ICE from more than the required number of CRAs, all such ICE opinions shall be RP4 or better for the RP to be considered for implementation. xxx xxx xxx D. Timelines for Large Accounts to be Referred under IBC 5 The residual debt of the borrower entity, in this context, means the aggregate debt (fund based as well as non-fund based) envisaged to be held by all the lenders as per the proposed RP. 6 Annex - 2 provides list of RP symbols that can be provided by CRAs as ICE and their meanings. 8. In respect of accounts with aggregate exposure of the lenders at ? 20 billion and above, on or after March 1, 2018 ('reference date'), including accounts where resolution may have been initiated under any of the existing schemes as well as accounts classified as restructured standard assets which are currently in respective specified periods (as per the previous guidelines), RP shall be implemented as per the following timelines: i. If in default as on the reference date, then 180 days from the reference date. ii. If in default after the reference date, then 180 days from the date of first such default. 9. If a RP in respect of such large accounts is not implemented as per the timelines specified in paragraph 8, lenders shall file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC)7 within 15 days from the expiry of the said timeline8. xxx xxx xxx 12. For other accounts with aggregate exposure of the lenders below ? 20 billion and, at or above ? 1 billion, the Reserve Bank intends to announce, over a two-year period, reference dates for implementing the RP to ensure calibrated, time-bound resolution of all such accounts in default. xxx xxx xxx V. Withdrawal of extant instructions 18. The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn 7 Applicable in respect of entities notified under IBC. 8 The prescribed timelines are the upper limits. Lenders are free to file insolvency petitions under the IBC against borrowers even before the expiry of the timelines, or even without attempting a RP outside IBC. with immediate effect. Accordingly, the Joint Lenders' Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework. 19. The list of circulars/directions/guidelines subsumed in this circular and thereby stand repealed from the date of this circular is given in Annex - 3. 20. The above guidelines are issued in exercise of powers conferred under Section 35A , 35AA (read with S.O.1435 (E) dated May 5, 2017 issued by the Government of India) and 35AB of the Banking Regulation Act, 1949; and, Section 45L of the Reserve Bank of India Act, 1934."
(2.) It will be noticed that the salient features of this circular are that restructuring in respect of borrower entities de hors the Insolvency and Bankruptcy Code, 2016 ["Insolvency Code"] can only occur if the resolution plan that involves restructuring is agreed to by all lenders, i.e., 100 per cent concurrence. Secondly, what has been chosen to be the subject matter of the circular is debts with an aggregate exposure of INR 2000 crore and over on or after 01.03.2018. With respect to such debts, if default persists for 180 days from 01.03.2018, or if the date of first default is after 01.03.2018, then 180 days calculated with effect from that date, lenders shall file applications singly or jointly under the Insolvency Code within 15 days from the expiry of the aforesaid 180 days. In short, unless a restructuring process in respect of debts with an aggregate exposure of over INR 2000 crore is fully implemented on or before 195 days from the reference date or date of first default, the lenders will have to file applications as financial creditors under the Insolvency Code. It will be noticed that the sources of power for issuance of the aforesaid circular have been stated to be Section 35A of the Banking Regulation Act read with the Central Government's circular dated 05.05.2017, Sections 35AA and 35AB of the said Act, and Section 45L of the Reserve Bank of India Act, 1934 ["RBI Act"]. It may be stated here that by an order dated 11.09.2018, this Court allowed various transfer petitions and made orders in Writ Petition No. 1086 of 2018, by which it was ordered that status quo as of today shall be maintained in the meantime. As a result, insofar as the petitions and transferred cases in this Court are concerned, the circular has, in effect, been stayed on and from 11.09.2018.
(3.) The charge on behalf of the petitioners was led by Dr. Abhishek Manu Singhvi, learned Senior Advocate. Dr. Singhvi appears on behalf of the Association of Power Producers, representing the power sector in general. According to the learned Senior Advocate, the Electricity Act , 2003 [" Electricity Act "] was enacted as a complete code to regulate the private sector. According to him, unlike sectors such as the steel and cement sector, the power sector is fully regulated and tariffs that are fixed can only be after they are so determined / adopted by Electricity Regulatory Commissions under Section 62 or Section 63 of the Electricity Act. The power sector, therefore, is a player in a restricted market - power can only be purchased by distribution licensees or trading licensees under Section 12 of the Electricity Act, which can only be done with the prior approval of State Electricity Regulatory Commissions. Even transmission of power requires prior approval of transmission licensees, and therefore, substitutability of buyers is impossible since the means to supply power are not readily available. To buttress his submissions, Dr. Singhvi relied heavily upon the reports of the Parliamentary Standing Committees which were looking into the problems of the power sector from time to time. Thus, the 37th Parliamentary Standing Committee Report on Stressed / Non- performing Assets in the Electricity Sector dated 07.03.2018 recorded that in the private sector, there were 34 stressed projects amounting to 40,130 MWs out of 85,550.30 MWs which have a debt exposure of INR 1,74,468 crore. Out of these, non-performing assets ["NPAs"] amounting to 34,044 crores are primarily on account of Government policy changes, failure to fulfil commitments by the Government, delayed regulatory response and non-payment of dues by DISCOMs. This Report, therefore, recommended the setting up of a task force to look into the NPA problem in the power sector.;