Supreme Court holds Reserve Bank of India’s circular mandating insolvency proceedings ultra vires
New Delhi: A bench of Justice Rohinton F Nariman and Justice Indu Malhotra, on Tuesday, declared a Reserve Bank of India circular, issued on February 12, which mandates insolvency proceedings for a debt servicing default beyond 180 days, to be beyond the bank’s legal power. The Supreme Court’s judgement is a relief for stressed industries, including those in the power and sugar sectors.
Earlier on September 11, 2018, the court had transferred the cases against the RBI circular pending in various high courts to it and ordered that insolvency proceedings not commence against the defaulting companies.
The circular, a part of a revised RBI framework, also gave a revised framework for resolution of stressed assets in the economy.
The RBI said, “In view of the enactment of the Insolvency and Bankruptcy Code, 2016, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets.”
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