The Reserve Bank of India (RBI) on Monday conceded before the Madras High Court that debt resolution and recovery mechanisms, such as Corporate Debt Restructuring Scheme, Strategic Debt Restructuring Scheme, Scheme for Sustainable Structuring of Stressed Assets, Joint Lenders Forum and 5/25 scheme had proved to be ineffective in resolution of stressed assets.
The submission was made in a counter affidavit submitted before Justice R. Mahadevan, who was seized of a writ petition filed by IL&FS Tamil Nadu Power Company, which operates two 600 MW units of sub critical thermal power plant in Cuddalore district. The petitioner had sought a declaration that a 2018 framework formulated by the RBI would not be applicable to it.
Opposing the plea, RBI said the 2018 framework, introduced through a circular issued by it on February 12, was aimed at resolving stressed assets in the Indian banking system by directing the banks to initiate Corporate Insolvency Resolution Proceedings (CIRP) if viable resolution plans could not be worked out with the borrowers within a reasonable time frame.
“Only if a resolution plan could not be arrived at the end [of] the democratic and transparent CIRP, the borrowing entity is taken up for liquidation. Even here, the Insolvency and Bankruptcy Code of 2016 provides for liquidation as a ‘going concern.’ Thus, even the code gives the opportunity for restructuring first,” the counter affidavit read.
It was brought to the notice of the court that the petitioner company had outstanding debt of ₹8,409.32 crore to 16 creditors as per a letter written by the State Bank of India, the lead bank, to RBI on August 9. “The liability of the petitioner to repay the same is not in doubt,” RBI said and pointed out that the petitioner’s prime argument was that it was not a defaulter.
Further, the petitioner company had claimed that it was a beneficiary of flexible restructuring of term loans approved by 13 out of 16 banks last year and hence the 2018 framework would not be applicable to it. It was its case that since a majority of the bankers had approved the revised business plan last year itself, it should be binding on all the lenders.
Rebutting the contention, the RBI said: “Mere approval of a plan and implementation of a plan are two different steps... Unless, an agreement for restructuring is signed and the revised terms are reflected in the books of banks, a plan cannot be said to have been implemented even if it had been approved. Approval is an internal process of the banks and it is reversible.”
After taking the counter affidavit on file, the judge adjourned the case to September 28 since counsel for SBI sought time to file a separate counter affidavit. He also tagged the case along with similar cases filed by other firms.
