New Delhi (Sputnik): In a major setback to the Reserve Bank of India, the country's Supreme Court on Tuesday struck down a rule of the bank to take defaulting companies to insolvency. The decision will bring relief to more than 75 companies which are facing insolvency proceedings due to default of payments.
The Reserve Bank of India issued a circular on 12 February 2018 directing banks to initiate insolvency proceedings against companies having bad debts of around $295 million or above. The circular directed banks to resolve their debts within 180 days, or face insolvency action.
The #SupremeCourt on Tuesday quashed a Reserve Bank of India (#RBI) circular on resolving bad #debt, providing relief for some major corporate defaulters but throwing… Read more at: https://t.co/1joaugq05K#Advisorymandi pic.twitter.com/tMBK9VZLqL— Advisorymandi.com (@advisorymandi) April 2, 2019
Several companies challenged the circular in the court arguing the time given by the central bank was insufficient to tackle bad debt.
While hearing the petition filed by the Association of Power Producers (APP) and the Independent Power Producers Association of India, the Supreme Court bench of Justices R F Nariman and Vineet Saran said that the norm in question is beyond the powers of Section 35AA of India's Banking Regulation Act.
In the petition, power companies with debts of over $30 billion argued that the provision was unfair as their debt repayment capacity was directly linked to revenue from power distribution companies and availability of coal.