Supreme Court On RBI Circular of 12th February, 2018

For the purposes of making The Insolvency and Bankruptcy Code, 2016 (Code) effective in its execution, the Government issued, The Banking Regulation (Amendment) Ordinance, 2017, which was legislatively introduced and notified by The Banking Regulation (Amendment) Act, 2017 (Amendment), vide which, Section 35AA and 35AB were inserted.

The law, is a cudgel when necessary and a balm where appropriate. It seems this has found its reflection in the ongoing evolution of IBC vis-à-vis allied statutes, their amendments and interpretations.

For the purposes of making the Code effective in its execution, the Government issued, The Banking Regulation (Amendment) Ordinance, 2017, which was legislatively introduced by The Banking Regulation (Amendment) Act 2017 (Amendment), vide which, Section 35AA and 35AB were inserted. At about the same time period, the Reserve Bank of India (RBI), by way of the Press Release of 13th June, 2017, identified certain accounts for reference by banks under the Code. An “Internal Advisory Committee” (IAC), was constituted for the purposes of recommending to the RBI the large stressed accounts which were classified partly or wholly as non-performing from among top 500 exposures in the banking system. Consequently, certain accounts were identified, which itself constituted around 25% of the NPAs in the system. It is mentioned in this context that the essence of the Amendment was that the Central Government may, by order, authorize the Reserve Bank of India (RBI), to issue directions to any banking company or companies to initiate insolvency resolution process in respect of a default under the provisions of the Code. The explanation to Section 35AA provides, that for the purpose of this section, “default” shall have the same meaning as assigned to it in Section 3(12) of the Code, while Section 35AB provided that RBI, without prejudice to the provisions of Section 35A, may issue directions from time to time to any banking company or companies, for resolution of stressed assets and for such purpose, RBI may specify one or more authorities or committees to advise the banking company or companies, on resolution of stressed assets.