The Supreme Court on Tuesday asked the Reserve Bank of India (RBI), banks and others to desist from invoking insolvency proceedings against corporate defaulters as per the banking regulator’s mandate till its orders, a move that would enable scores of stressed units in the power, textiles, sugar and shipping industries to avoid being immediately dragged by their lenders to the insolvency arena and look for alternative ways for resolution. The court will hear the matter next in mid-November.
As per the RBI’s February 12 circular, lenders had to identify projects with even a day’s default and come out with a resolution plan within 180 days from the reference date of March 1, 2018 (that is, by August 27, 2018). The circular had compelled banks to take these firms to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) right away; even some serious attempts by large banks like State Bank of India (SBI), which would have helped existing promoters to retain part of their stakes in some stressed but apparently revivable units, were hamstrung by the circular’s stringent time schedule.
“The SC order has provided a great relief to power-sector stressed assets. This would provide time for bankers to finalise resolution plans for projects with combined capacity of about 13 gigawatts. The resolution plans (outside the IBC purview) were in their final stages and a high-level empowered committee under the chairmanship of Cabinet secretary was to submit its report on corrective actions,” said Ashok Kumar Khurana, director general, Association of Power Producers (APP).
Confederation Of Indian Textile Industry chairman Sanjay Jain said the labour-intensive textiles and garment sector should be given relaxation from the RBI circular, as these businesses, dominated by medium and small-scale enterprises, have been affected by factors beyond their control (such as demonetisation and the implementation of the goods and services tax). “Even their cash flow is seasonal, so they deserve special treatment,” he said.
A bench led by justice Rohinton F Nariman transferred to itself all the related petitions pending before different high courts in the country. While this reporter was present in the court during Tuesday’s hearing, the order wasn’t uploaded on the apex court’s website at the time of going to press.
However, sources said, the lenders can still move the high courts for recovery of their debts or NCLT for filing insolvency petitions in their independent capacities under Section 7 of the IBC, but cannot do so under the RBI mandate. The order came on an application filed by the RBI seeking the transfer of all the similar cases pending before high courts of Delhi, Allahabad and Madras on the grounds that there was a likelihood of conflict of decisions if the petitions were decided independently and that would lead to “confusion and uncertainty for lenders, borrowers, defaulters and other involved parties”.
APP, Independent Power Producers Association of India, shipowners and textile associations, private power companies, bank employees, etc, had filed various petitions against the controversial circular in various high courts. Even the Madras High Court on Monday gave temporary protection to RKM Powergen’s 1,440 MW stressed power unit at Chhattisgarh from any action under the RBI circular. However, the four firms — Essar Power, GMR Energy, KSK Energy and Rattan India Power — withdrew their petitions from the Allahabad High Court, seeking similar relief.
The Allahabad HC had on August 27 refused to set aside the circular. The Allahabad HC said the Centre may direct the RBI for a special dispensation for the sector. Power sector players had alleged 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 state and central governments.
The government had earlier told the Allahabad HC that it had set up a high-level empowered committee in June to resolve various issues, including fuel allocation, and prevent stressed power assets worth Rs 2.5 lakh crore from becoming non-performing assets.
Under the Samadhan scheme proposed by SBI, a host of power projects were identified for resolution and their sustainable debt levels were determined. These projects with at least partial power purchase agreements and certain fuel linkages included GMR (Chhattisgarh) Energy (1,370 MW), Essar Mahan (1,200 MW), Prayagraj Power (1,980 MW), KSK Mahanadi (2,400 MW) and Jaypee Power Ventures (1,820 MW).
As many as 34 power assets with a capacity of 40,130 MW remain stressed. The top four stressed assets by capacity are KSK Akaltara (3,600 MW), Adani Tiroda (3,300 MW), Jaypee Bara (1,980 MW) and Rattan Power Nasik-1 (1,350 MW). Analysts said under the Pariwartan scheme devised by the Rural Electrification Corporation, a number of projects could be salvaged.
The scheme proposes a transitory warehousing of the viable lot of the stressed power assets and safeguarding the value of these assets from any immediate distress sale under the IBC. The government has recently asked REC to tweak the structure of the proposed asset reconstruction company (ARC) under the scheme after the RBI refused to relax its norms for ARCs exclusively for the one planned for the power sector.