SC relief for insolvent companies hit by insolvency Act
12 September 2018
The Supreme Court on Tuesday allowed an interim stay on the Reserve Bank of India’s 12 February circular asking banks to begin insolvency process in cases of all overdue loans instead of pursuing debt restructuring, giving a breather to financially stressed companies.
There are about 70 such stressed assets, of which about 30 are in the power sector while the remaining includes a mix of textile, shipping and other companies.
The apex court will hear the matter again on 11 November. This means that the companies and banks have a grace period till 11 November to cobble up a solution.
Earlier, on 27 August, the Allahabad High Court refused to stay the RBI circular.
At least four power companies, including Punj Lloyd, GMR, Rattan India and IL&FS, had moved the Allahabad High Court, the Delhi High Court and the Madras High Court seeking relief from the RBI circular.
The Supreme Court has transferred all pleas filed before the various high courts to itself while asking the RBI and parties to maintain status quo with regard to insolvency proceedings. With the stay on RBI circular by the Supreme Court, the NCLT will have to wait to complete its insolvency procedures.
According to the Association of Power Producers, there are about 13-14 GW capacity assets being referred to NCLT and the interim stay would give some time to bankers to finalise resolution plans.
The projects where the resolution have been almost finalised through change of management include KSK Mahandi, GMR’s Raikheda and Chhattisgarh plants, Prayagraj Power, RattanIndia Power’s Amravati and Nashik projects, Essar Mahan and other projects.