The Supreme Court on Tuesday refused to stay the Allahabad High Court proceedings related to the RBI circular that mandates insolvency proceedings for a debt servicing default beyond 180 days.
The Supreme Court on Tuesday refused to stay the Allahabad High Court proceedings related to the RBI circular that mandates insolvency proceedings for a debt servicing default beyond 180 days. A bench led by Justice Rohinton F Nariman refused to stay the HC proceedings as sought by the RBI, but issued notice to the power producers and others who have challenged the RBI circular of February 12, which mandated banks to initiate insolvency proceedings against firms that default on servicing debt beyond 180 days.
The circular had raised chances of insolvency proceeding being invoked against 34 stressed projects by as early as September.
The apex court posted the matter for further hearing on August 28, when other petitions challenging various provision of the Insolvency and Bankruptcy Code will be taken up.
Power sector players have alleged before the HC that the impugned provision was unfair to them as their debt servicing capability was directly linked to payments from power discoms and coal availability, and both are heavily regulated by the state and central governments.
Tuesday’s SC order came on the RBI petition seeking transfer of all the similar case pending before various high courts of Delhi, Allahabad and Madras on the grounds that there is a likelihood of conflict of decisions if the petitions are decide independently and that would lead to “confusion and uncertainty for lenders, borrowers, defaulters and other involved parties”.
As the deadlines approach, there is likelihood of more defaulters moving various HCs across the country, challenging the validity of the new control mechanism brought forth to tackle the NPA crisis afflicting the economy, the banking regulator said.