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2019 DIGILAW 210 (CAL)

Impex Ferro Tech Ltd. v. Punjab National Bank

2019-02-13

DEBANGSU BASAK

body2019
JUDGMENT : DEBANGSU BASAK, J. 1. There are two-fold prayers in the writ petition. One prayer relates to a direction upon the bank to act in terms of the Guidelines dated February 12, 2018 particularly clause 12 thereof issued by the Reserve Bank of India in exercise of powers under Sections 35A, 35AA and 35AB of the Banking Regulation Act, 1949 and Section 45(L) of the Reserve Bank of India Act, 1934. The other prayer is that, the bank should not be allowed to proceed with C.P. (IB) No. 1068/KB/2018 pending before the National Company Law Tribunal, Kolkata, since the proceedings were filed in violation of the Guidelines dated February 12, 2018. 2. Learned Advocate appearing for the petitioners submits that, after the Insolvency and Bankruptcy Code, 2016 came into effect, the provisions of the Banking Regulation Act, 1949 underwent amendments. Section 35AA and Section 35AB were introduced to the Act of 1949. The two new provisions introduced to the Act of 1949 empower the Reserve Bank of India to issue guidelines for the purpose of implementing the provisions of the Code of 2016. He refers to the Action Plan to implement the provisions of Sections 35AA and 35AB of the Act of 1949 as formulated by the Reserve Bank of India on May 22, 2017. He draws the attention of the Court to a writing dated June 13, 2017 issued by the Reserve Bank of India. He submits that, by such writing, the Reserve Bank of India at Internal Advisory Committee level was of the view that, an objective, non-discretionary criterion for referring accounts for resolution under the Code of 2016 was yet to fructify. He refers to the Guidelines dated February 12, 2018 and particularly to clause 12 thereof and submits that, Reserve Bank of India is yet to formulate a reference date for implementing the resolution plan to ensure calibrated, time-bound resolution of accounts falling between Rs.20 billion and, at or above Rs.1 billion. The accounts of the petitioner come within such bank. Reserve Bank of India being yet to announce such reference date for implementation of the resolution plan, the bank acted prematurely and in fact in violation of the Guidelines dated February 12, 2018 in filing the proceedings before NCLT. He submits that, the Guidelines dated February 12, 2018 are binding upon the bank. Reserve Bank of India being yet to announce such reference date for implementation of the resolution plan, the bank acted prematurely and in fact in violation of the Guidelines dated February 12, 2018 in filing the proceedings before NCLT. He submits that, the Guidelines dated February 12, 2018 are binding upon the bank. He relies upon (Sudhir Shantilal Mehta v. Central Bureau of Investigation, (2009) 8 SCC 1 ) and submits that, directions issued by the Reserve Bank of India are binding upon the bank. The bank having failed to adhere to clause 12 of the Guidelines dated February 12, 2018, it should not be allowed to proceed with the company petition pending before NCLT. He refers to an Order dated July 3, 2018 passed by the National Company Law Tribunal (NCLT), Kolkata Bench in C.P. (IB) No. 176/KB/2018 (State Bank of India v. Impex Metal & Ferro Alloys Limited) and submits that, when similar issues were raised NCLT was of the view that, the same may be raised at an appropriate forum. 3. Learned Senior Advocate appearing for the bank submits that, the bank has statutory right to approach NCLT under the provisions of the Code of 2016. He submits that, clause 12 of the Guidelines dated February 12, 2018 cannot be read to mean that, no bank can approach NCLT for the purpose of filing insolvency proceeding for accounts involving claims between Rs.1 billion and Rs.20 billion. The petitioner is not entitled to any relief. 4. The provisions of the Code of 2018 came into effect on and from December 2016. The Act of 1949 underwent an amendment by virtue of the Bank Regulation (Amendment) Ordinance, 2017. Section 35AA and Section 35AB were introduced to the Act of 1949. Such sections are as follows:- "35-AA. Power of Central Government to authorize Reserve bank for issuing directions to banking companies to initiate insolvency resolution process.- The Central Government may by order authorize the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016). Explanation.- For the purposes of this section, "default" has the same meaning assigned to it in clause (12) of Section 3 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)." "35-AB. Explanation.- For the purposes of this section, "default" has the same meaning assigned to it in clause (12) of Section 3 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)." "35-AB. Power of Reserve Bank to issue direction in respect of stressed assets.- (1) Without prejudice to the provisions of Section 35-A, the Reserve Bank may, from time to time, issue directions to any banking company or banking companies for resolution of stressed assets. (2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise any banking company or banking companies on resolution of stressed assets." 5. Section 35AA of the Act of 1949 empowers the Central Government to authorize Reserve Bank of India to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default under the provisions of the Code of 2016. Default for the purpose of Section 35AA means the meaning assigned to it in clause (12) of Section 3 of the Code of 2016. Section 35AB of the Act 1949 provides that, the Reserve Bank of India may, from time to time, issue directions to the banking companies for resolution of stressed assets. This power will be without prejudice to the provisions of Section 35A. Sub-section (2) of Section 35AB of the Act of 1949 allows the Reserve Bank of India to specify one or more authorities or committees with such members to appoint or approve for appointment to advise banking companies on resolution of stressed assets. 6. Reserve Bank of India outlined its action plan to implement the Ordinance of 2017 by the writing dated May 22, 2017. In paragraph 5 of such writing, Reserve Bank of India expressed that, it was working on a framework to facilitate an objective and consistent decision making process with regard to cases that may be determined for reference for resolution under the Code of 2016. There is a subsequent writing dated June 13, 2017 issued by the Reserve Bank of India for identifying accounts for reference by the banks under the Code of 2016. June 13, 2017 is a corrigendum to the writing dated May 22, 2017. Such writing notes that, an Internal Advisory Committee was constituted and held its first meeting on June 12, 2017. June 13, 2017 is a corrigendum to the writing dated May 22, 2017. Such writing notes that, an Internal Advisory Committee was constituted and held its first meeting on June 12, 2017. It also notes that, the Internal Advisory Committee agreed to focus on large stressed accounts at that stage and took up for consideration the accounts which were classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system. Paragraph 3 of such writing dated June 13, 2017 states that, the Internal Advisory Committee also arrived, at an objective, nondiscretionary criterion for referring accounts for resolution under the Code of 2016. It recommends reference of all accounts with fund and non-fund based outstanding amount greater than Rs.5,000 crore, with 60% or more classified as non-performing by bank as of March 31, 2016. Paragraph 4 of such writing outlines the recommendation of the Internal Advisory Committee that Banks should finalize a resolution plan within six months for other non-performing accounts which do not qualify under paragraph 3. In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the Code of 2016. 7. By the Guidelines dated February 12, 2018, Reserve Bank of India issued revised framework for resolution of stressed assets. Paragraph 12 of Guidelines deals with other accounts with aggregate exposure of the lenders below Rs.20 billion and, at or above Rs.1 billion. Paragraph 12 of such Circular is as follows:- "12. For other accounts with aggregate exposure of the lenders below Rs.20 billion and, at or above Rs.1 billion, the Reserve Bank intends to announce, over a two-year period, reference dates for implementing the RP to ensure calibrated, time-bound resolution of all such accounts in default." 8. A circular issued by the Reserve Bank of India is binding upon a bank. This is the view expressed in Suhir Shantilal Mehta (supra). The Guidelines dated February 12, 2018 states that, it was issued in exercise of powers conferred under Sections 35A, 35AA and 35AB of the Banking Regulation Act, 1949 and Section 45(L) of the Reserve Bank of India Act, 1934. The issue is whether the bank in invoking the Code of 2016 and filing the proceedings before NCLT, Kolkata being C.P. (IB) No.1068/KB/2018 violated such Guidelines or not. The issue is whether the bank in invoking the Code of 2016 and filing the proceedings before NCLT, Kolkata being C.P. (IB) No.1068/KB/2018 violated such Guidelines or not. Assuming that, the bank did so then also, it cannot be said that, the bank was incapable of availing of the remedy under the Code of 2016 or that, the filing before the Company Law Board is bad in law or premature or not maintainable. The Code of 2016 allows the bank to approach to the designated authority for a resolution plan to resolve the insolvency complained of. The Guidelines dated February 12, 2018 cannot be read to mean that Reserve Bank of India prevented any bank to avail of the Code of 2016 for resolution of insolvency in any account. 9. In the facts of the present case, there is a claim of the bank against the petitioners. It approached NCLT for the purpose of resolution of the insolvency of the first petitioner in terms of the Code of 2016. The filing of the proceedings cannot be faulted. No relief can be granted to the petitioners in respect of such proceedings. 10. So far as the relief with regard to the implementation of the Guidelines dated February 12, 2018 is concerned, the Reserve Bank of India to formulate its policy as noted in paragraph 12 thereof. No direction need be issued with regard thereto, at the instance of the petitioner as the bank has already involved the Code of 2016. Moreover, the Reserve Bank of India is not a party to the present writ petition. 11. In such circumstances, I find no merit in the present writ petition. 12. W.P. No.476 of 2018 is dismissed. No order as to costs.