04:45 GMT +322 September 2019
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    A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi, India, November 9, 2018

    India's Top Court Strikes Down Insolvency Rules Against Corporate Defaulters

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    In the last year, the rules set out by the country’s central bank, the Reserve Bank of India, forced several companies in the power, sugar and steel sectors into insolvency. The rule was considered a major step to curb the rising bad debts on the balance sheets of Indian banks.

    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.

    READ MORE: Indian Apex Court Dismisses Staff Illegally Helping Corporate Czar

    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 circular also mandated banks to treat corporate creditors as defaulters if loan repayments were delayed by as little as a day.

    ​Several companies challenged the circular in the court arguing the time given by the central bank was insufficient to tackle bad debt. 

    READ MORE: Indian Finance Gurus Debunk Data Fudging Claims Against Government — Reports

    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.

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    Tags:
    bad debts, loans, default, non-payment, Supreme Court of India, Reserve Bank of India, India
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