New Delhi, April 2 (IANS) In a big relief for stressed power sector projects, the Supreme Court on Tuesday set aside a February 12, 2018 circular of the Reserve Bank of India (RBI) that asked banks to initiate insolvency process against companies even if there was a day’s delay in payment of dues.
Though the details of the judgement were still awaited, legal experts said the apex court has made the RBI circular infructuous thus negating its operation.
Apart from the power sector, the decision would also benefit several other sectors including, sugar, shipping that are also facing stress and those companies, which were facing difficulties in honouring their loan commitments.
However, power companies, including 34 stressed projects with a capacity of about 40,000 MW would be the biggest beneficiary as it now provides both banks and power generators with more time to resolve debt.
Power companies, including Essar Power, GMR Energy, KSK Energy, and Rattan India Power, as well as The Association of Power Producers (APP) and Independent Power Producers Association of India (IPPAI) had in August moved the top court, challenging the constitutional validity of the February 12 circular of the RBI.
The power sector had contended that they were not wilful defaulters and were facing sectoral and market issues, including non-availability of fuel and power purchase agreement (PPAs) and non payment by state utilities issues. This hampered their ability to generate revenue and maintain their loan repayment schedule with banks.
The February 12, 2018 RBI circular had asked banks and other lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against them in the National Company Law Tribunal (NCLT). The RBI in this circular had allowed 180 days for debt resolution, failing which the asset would have to be taken to NCLT for initiation of insolvency against them. The deadline got over on August 31, 2018.
There were some companies which had challenged the validity of the Insolvency and Bankruptcy Code (IBC) itself, while others had questioned the constitutional validity of the RBI’s February 12 circular.
Power companies, however, had sought temporary relief from the circular only for themselves.
With the Supreme Court order, banks would be free to continue to find a resolution for the 34 stressed power assets rather than being forced to push some of their standard clients into insolvency proceeding.
Of the total 34 stressed assets, 20 projects have PPAs signed for less than 50 per cent of their capacity. Earlier, banks led by SBI came together in June to try and resolve 11, which were complete or near complete, under a so-called Samadhan scheme. Centre has also now come up with a scheme to resolve the fuel issues for stressed power projects.
Out of the 34 projects about four are already in NCLT, efforts for resolution by through strategic investor or asset sale is being pursued for about 9-10 projects.
With court’s decision, more projects will be taken up for resolution and only about seven-eight more may go to the NCLT now.