Page 8 - Banking Finance May 2019 N

RBI CORNER

RESERVE BANK

NEWS
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RBI gives approval to Supreme Court strikes down RBI's Feb 12 circular on
Catholic Syrian Bank's debt resolution
SC struck down a RBI circular that gave defaulting companies 180 days to agree
part-time chairman
on a resolution plan with lenders or be taken to
The RBI approved the appointment bankruptcy court to recover debt of Rs 2,000 crore
of Madhavan Menon as Part-time and above. The bench said the February 12, 2018,
Chairman circular was beyond the scope of the RBI's powers.
of the
Catholic "The impugned circular will have to be declared as
Syrian ultra vires as a whole, and be declared to be of no
Bank effect in law," said the two-judge bench led by justice RF Nariman. "Consequently,
(CSB) for all actions taken under the said circular, including actions by which Insolvency
a period Code has been triggered must fall along with the said circular."
of one year from the date of ap- The court's decision restored the discretion of banks on debt resolution. The
pointment ruling may affect stressed assets worth around Rs 2.2 lakh crore in many sec-
Menon is currently the chairman and tors and mean unwinding the insolvency resolution process in some instances,
managing director of Thomas Cook legal experts said. Also on the bench was justice Vineet Saran.
India. Senior advocate Abhishek Manu Singhvi, who opposed the circular on behalf of
Earlier, Fairfax had nominated the stressed power sector, said the verdict would possibly have a knock-on ef-
Menon and Sumit Maheshwari, MD fect on the resolution process, depending on the circumstances in which it was
& CEO of Fairbridge Capital (owned invoked.
by the Fairfax Financial Holdings) to "Once the court declares a circular as ultra vires, all necessary consequences
the CSB board. will follow unless the court specifically chooses to make it prospective," he said.
CSB and FIH Mauritius Investments "All action taken up to now either by banks or creditors under the circular and
Ltd (FIH-M) entered into an invest- not been consummated will stand unravelled. Individual cases pending under
ment agreement in February 2018. IBC(Insolvency and Bankruptcy Code) so long as they were entirely under the
The agreement was modified on circular would be withdrawn."
October 15, 2018, and pursuant to Proceedings will not lapse automatically and instances of companies changing
which, Fairfax agreed to acquire
hands in the IBC may not have to be unwound, he said. The order came as a
shares of up to 51 per cent of the relief to companies in stressed sectors such as power, shipping, steel, telecom,
post issue paid-up capital of the infrastructure, sugar, fertiliser and sports infrastructure, which had blamed ex-
bank.
traneous reasons such as regulatory controls that capped prices.

8 | 2019 | MAY | BANKING FINANCE