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2019 DIGILAW 233 (ORI)

Visa Steel Ltd v. Reserve Bank of India

2019-03-25

S.K.MISHRA

body2019
JUDGMENT : S.K. MISHRA, J. 1. In this writ petition the petitioner, being a Company, has prayed to issue direction to the opposite parties to release the details of the resolution framework in terms of Clause-6 of the Press Release dated 13th June, 2017 under Anexure-2 and to allow the petitioner to have a resolution plan in terms of Clause-4 of the aforesaid Press Release. It is further prayed for issuance of mandamus to the Reserve Bank of India, opposite party no.1, to issue details of resolution frame work in terms of Clause-6 of the Press Release dated 13th June, 2017 and a mandamus to the State Bank of India, opposite party no.2, to finalize and implement the resolution plan within six months from the date of release of resolution frame work in terms of Clause-4 of the Press Release dated 13th June, 2017. It is also prayed for issuance of writ of certiorari quashing the initiation of proceeding before the National Company Law Tribunal under the Insolvency and Bankruptcy Code. 2. The case of the petitioner, which is undisputedly a loanee, having a default of more than Rs.4000 crores to the consortium Banks of which the State Bank of India is the lead Bank. The petitioner pleads that the Reserve Bank of India (hereinafter referred to as the "RBI" for brevity) in usual course of discharging its duties and obligations from time to time have issued diverse directions and/or guidelines in relation to the cases that may be considered for reference for resolution under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC" for brevity). The RBI on 13th June, 2017 issued a Press Release under the heading "Reserve Bank of India Identifies Accounts for Reference by Banks under the Insolvency and Bankruptcy Code (IBC)" inter alia, recording the decision of the Internal Advisory Committee (IAC) in formulating an objective, nondiscretionary criteria for referring account for resolution under the said IBC. The said Press Release is annexed herewith as Annexure-2 to the writ petition. The case of the petitioner is that the RBI recommended for reference under the said IBC of all accounts with fund and non-fund based outstanding amount greater than Rs.5000 crores with 60% or more classified as nonperforming by banks as on 31st March, 2016. Under the said recommended criteria while 12 accounts were identified. The case of the petitioner is that the RBI recommended for reference under the said IBC of all accounts with fund and non-fund based outstanding amount greater than Rs.5000 crores with 60% or more classified as nonperforming by banks as on 31st March, 2016. Under the said recommended criteria while 12 accounts were identified. As regards the other nonperforming accounts which did not qualify under the aforesaid criteria, it was recommended that the banks should finalize a resolution plan within six months and in cases where a viable resolution plan was not agreed upon within the stipulated period the banks would be required to file for insolvency proceedings under the said IBC. The details of the resolution framework in regard to the other non-performing accounts were directed to be released in the following days. A corrigendum was issued on 8th July, 2017. While a portion of Press Release was amended by deletion of a portion of Clause-5. The case of the petitioner is that it falls in the other categories of nonperforming account which did not qualify under the criteria mentioned in Clause-3 of the said Press Release. As such in terms of Clause-4 of the said Press Release a resolution plan was to be finalized in terms of the resolution frame work which was to be released in terms of clause 6 thereof. It is the further case of the petitioner is that no resolution framework was or has been released by the RBI till date, as a result whereof no resolution plan could be finalized and implemented. The stipulated period of six months also did not commence to run as no resolution frame work was released. The petitioner has from time to time sought finalization of a resolution plan in terms of the aforesaid Press Release and has also given various proposals to opposite party no.2 being the lead Banker. As neither any resolution framework was released by opposite party no.1 in terms of Clause-6 of the said Press Release dated 13th June, 2017, it was neither possible nor feasible to finalize the resolution plan within six months in terms of clause-4 thereof or otherwise. As opposite party no.2 did not and/or could not comply with the provision of Clause-4 of the Press Release dated 13th June, 2017. As opposite party no.2 did not and/or could not comply with the provision of Clause-4 of the Press Release dated 13th June, 2017. Non-compliance of the aforesaid Clause-4 of the Press Release deprives the petitioner from availing a resolution plan, notwithstanding exercise of due diligence and bonafide. The SBI on 21st December, 2017 filed proceeding under Section 7 of the IBC against the petitioner company before the National Company Law Tribunal, which has been registered as CP (IB) 24/KB/2018. 3. Learned Senior Counsel appearing for the petitioner submitted that filing of the aforesaid proceeding is not only contrary to and/or inconsistent with the Press Release dated 13.6.2017 and in the absence of a resolution framework in terms of Clause-6 thereof, the petitioner is deprived of the opportunity to finalize a resolution in terms of such frame work. The petitioner has a legitimate expectation that the Press Release dated 13.6.2017 and all its directions would be complied, including that of releasing of resolution framework in terms of Clause-6 thereof. It is submitted that the action of the SBI is illegal, arbitrary and denying/depriving the petitioner from availing finalization of a resolution plan in terms of Clause-4 of the said Press Release, other banks mentioned in the schedule appearing in Annexure-1, would be inspired. As it is necessary to pass appropriate orders/writs by this Court, this writ petition has been filed. 4. Counter affidavit has been filed by opposite party no.1. Firstly, they submitted that the writ petition ought to be dismissed on the ground that comprehensive restructuring directives issued by RBI and there is no right in favour of the petitioner to have its debt restructured. It is borne out from the pleading that the RBI has issued various directive from time to time for restructuring of debt under the Joint Lenders' Forum (hereinafter referred to as "JLF" for brevity) mechanism. By its circular dated February 26, 2014 on frame work for Revitalizing Distressed Assets in the Economy Guidelines on JLF and Corrective Action Plan (hereinafter referred to as "CAP" for brevity) (Restructuring Guidelines), RBI introduced a mechanism by which the JLF may arrive at a CAP for resolution of stressed debt which included, inter alia, rectification, restructuring and recovery. Furthermore, the RBI pleads that it is directive do not prohibit/restrain initiation of insolvency proceedings under the Code prior to implementation of the resolution plan/or an attempt thereto. Furthermore, the RBI pleads that it is directive do not prohibit/restrain initiation of insolvency proceedings under the Code prior to implementation of the resolution plan/or an attempt thereto. Therefore, it is stated by the RBI that the petitioner company do not have any right to have its debt restructured. 5. Opposite party no.2 has also filed its counter affidavit. It is pleaded by the SBI that the loan account of the petitioner company comes within top 500 N.P.A. account and is in the category of "other non-performing accounts" under Clause-4 of the Press Release dated 13.6.2017. In the instant case, opposite party no.2 along with other 17 lender Banks have sanctioned loans for Rs.3640 crores wherein opposite party no.2 is the consortium leader. After the said account has become NPA, opposite party no.2 as lender Bank along with other lender Banks have examined and taken all efforts to find out an acceptable and viable resolution plan in compliance with RBI guidelines. The SBI pleads that several Joint Lenders Meeting (hereinafter referred to as "JLM" for brevity) were held and the petitioner was present. The Banks have granted reasonable opportunities to the petitioner company for submission of resolution plan acceptable to the lenders and the resolution plan submitted by the company were carefully considered by the lenders in various JLMs. Since the resolution plan submitted by the petitioner company was found not viable, the lenders had no other alternative but to adhere to the instructions of the regulator and file application before NCLT, Kolkata seeking corporate insolvency resolution plan. It is most humbly submitted that the IBC provides for Corporate Insolvency Resolution Process of Corporate Person/Company for maximization of value of assets of such borrowing company, promote entrepreneurship, make availability of credit and balance the interest of all the stakeholders. The SBI further pleads that the account of the petitioner company became NPA on 11.7.2012. Opposite party no.2 acted as per instructions and guidelines issued by the RBI. There is absolutely no violation or contraventions on the part of opposite party no.2 in initiating the proceedings before the National Company Law Tribunal, Kolkata. The loan accounts of the petitioner company comes within top 500 NPA. Accounts and Bank have provided reasonable opportunities to the petitioner company for submission of a viable resolution plan acceptable to the lenders. There is absolutely no violation or contraventions on the part of opposite party no.2 in initiating the proceedings before the National Company Law Tribunal, Kolkata. The loan accounts of the petitioner company comes within top 500 NPA. Accounts and Bank have provided reasonable opportunities to the petitioner company for submission of a viable resolution plan acceptable to the lenders. Moreover, whatever resolution plan submitted by the company were carefully considered by the lenders and since the same was not submitted by the petitioner company, the lenders had no other alternative but to honour the instructions of the regulator and file application before NCLT, Kolkata seeking corporate insolvency resolution plan. Opposite party no.2 being a public sector Bank is obliged under law to adhere to the provisions and guidelines/policies framed by opposite party no.1 from time to time. In reply to the averments made by the petitioner in paragraph-5 of the writ petition, the SBI has stated in its counter affidavit that the RBI has issued direction as per Annexure-2 of the writ petition and instructions of the said direction of the RBI is complied with by the lenders as is evident from minutes of the various JLMS/correspondence of the petitioner. Copies of the minutes of the proceedings dated 4.8.2017, 25.9.2017, 26.10.2017, 18.11.2017 and 28.11.2017 are annexed to the counter affidavit and has been marked as Annexures-A/2, B/2, C/2, D/2 and E/2. Therefore, the learned Senior Counsel appearing for the SBI submits that there is no truth in the assertions made by the petitioner company and there has been enough efforts in various JLMs to settle its debts and restructured it. As there is no viable alternative, the SBI has no other option but to initiate a proceeding against the petitioner company before the National Company Law Tribunal. 6. Mr. Kapoor, learned Senior Counsel appearing for the petitioner company, argued that the Press Release issued by the RBI identifies certain accounts for resolution under the IBC. Such Press Release categorized the following two categories. The 1st category relates to the defaulting loanee having more than Rs.5000.00 crores and other non-performing accounts having less amount as the other category. The Internal Advisory Committee recommended that the Bank should finalize a resolution plan within six months. In cases, where a viable resolution plan is not agreed upon within six months, Bank should file insolvency proceeding under the IBC. The Internal Advisory Committee recommended that the Bank should finalize a resolution plan within six months. In cases, where a viable resolution plan is not agreed upon within six months, Bank should file insolvency proceeding under the IBC. Placing much reliance on paragraph-6 of the Press release, which contains that the details of the resolution frame work in regard to other non-performing accounts should be released in coming days. It is argued by the learned Senior Counsel for the petitioner that no resolution frame work has been issued by the RBI with regard to non-performing asset having less than Rs.5000.00 crores. According to RBI the matter cannot be referred to the National Company Law Board. Annexure-2 which is issued in purported exercise of power of RBI under Sections 35-AA and 35-AB of the Banking Regulation Act is a delegated legislation and if it is taken to be delegated legislation, the same having not been published and the petitioner has not been informed about such direction, the prayer made by the petitioner should be allowed and appropriate direction is sought for, described above, should be issued in favour of the petitioner. 7. Learned Senior Counsel for the RBI submits that in the matter of financial management, the Court should refrain from interfering especially the cases involving complicated fiscal evaluation inasmuch as it is argued that the doctrine of restrain should be applied. He relies upon several judgments. It is appropriate to take up one judgment, i.e. Peerless General Finance and Investment Co. Ltd. and another Vs. RBI, (1992) 2 SCC 343 . In the reported case, the Hon'ble Supreme Court considered the question whether the endowment scheme piloted by the Peerless General Finance and Investment Company Ltd. fell within the definition of 'Prize Chits' within the meaning of Section 2(e) of the Banning Act and also in course of disposing of the same, the Hon'ble Supreme Court has dealt with many other matters related to the Central Issue and at Paragraph-69 a word of caution has been imparted by the Hon'ble Supreme Court. The said paragraph is quoted herein below:- "69. It is well settled that the court is not a tribunal from the crudities and inequities of complicated experimental economic legislation. The discretion in evolving economic measures, rests with the policy makers and not with the judiciary. The said paragraph is quoted herein below:- "69. It is well settled that the court is not a tribunal from the crudities and inequities of complicated experimental economic legislation. The discretion in evolving economic measures, rests with the policy makers and not with the judiciary. Indian social order is beset with social and economic inequalities and of status, and in our socialist secular democratic Republic, inequality is an anthema to social and economic justice. The Constitution of India charges the State to reduce inequalities and ensure decent standard of life and economic equality. The Act assigns the power to the RBI to regulate monetary system and the experimentation of the economic legislation, can best be left to the executive unless it is found to be unrealistic or manifestly arbitrary. Even if a law is found wanting on trial, it is better that its defects should be demonstrated and removed than that the law should be aborted by judicial fiat. Such an assertion of judicial power deflects responsibilities from those on whom a democratic society ultimately rests. The Court has to see whether the scheme, measure or regulation adopted is relevant or appropriate to the power exercised by the authority. Prejudice to the interest of depositors is a relevant factor. Mismanagement or inability to pay the accrued liabilities are evils sought to be remedied. The directions are designed to preserve the right of the depositors and the ability of RNBC to pay back the contracted liability. It is also intended to prevent mismanagement of the deposits collected from vulnerable social segments who have no knowledge of banking operations or credit system and repose unfounded blind faith on the company with fond hope of its ability to pay back the contracted amount. Thus the directions maintain the thrift for saving and streamline and strengthen the monetary operations of RNBCs." 8. Thus, it is submitted by the learned Senior Counsel for the R.B.I. that the complex and technical matters, like financial regulation, should not be interfered with by the Court in exercise of its writ jurisdiction. 9. Thus the directions maintain the thrift for saving and streamline and strengthen the monetary operations of RNBCs." 8. Thus, it is submitted by the learned Senior Counsel for the R.B.I. that the complex and technical matters, like financial regulation, should not be interfered with by the Court in exercise of its writ jurisdiction. 9. Moreover, in this case it is seen that the SBI has made enough efforts and this Court has examined the records and it is apparent from AnnexuresA/2, B/2, C/2, D/2, E/2 and F/2 that attempts were made by the SBI to settle the matter and find out a resolution plan, but the efforts failed as the petitioner failed to put forth a viable accepted plan. Hence, opposite party no.2 has no way out but to initiate an insolvency proceeding before the appropriate Tribunal. 10. In that view of the matter, this Court exercises restraint in matters of financial and economic affairs, refuse to exercise its jurisdiction under Articles 226 and 227 of the Constitution of India and hold that there is no merit in the Writ Petition and the same is dismissed being devoid of any merit. However, there shall be no order as to costs.