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Supreme Court Find RBI's Feb. 12 Circular Ultra Vires

Equity_Pandit

The Supreme court today has turned down the RBI’s February 12 circular on defaulting companies, calling it illegal. The highest court ruled today, “we found RBI’s February 12 circular to be ultra vires.”
“The challenge was mounted to the RBI circular and nothing beyond that. The court today has quashed the RBI circular as being unconstitutional and ultra vires,” said senior advocate Sajjan Poovayya who appeared for the petitioners.
N.S. Vishwanathan, Deputy Governor, RBI earlier in a speech said, “the Reserve Bank believes that a focused framework for the resolution of distressed borrowers which respects and enforces the sanctity of the debt contract is required to make sure that the excesses observed during the last credit cycle are not repeated and we don’t end up in a similar situation few years down the line.”
The power companies challenging the circular in court said, “the circular does not differentiate between cases where entities have become NPA due to poor management, decision making, and inefficiencies and power sector entities which has become NPA due to external factors including lack of PPAs (power purchase agreements), insufficient fuel, delay in payment, delayed adjudication of claims, etc.’’
The Supreme Court’s decision means that as of now there is no RBI-sponsored scheme to restructure stressed accounts.
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