SC quashes RBI’s February 12, 2018 circular

The Supreme Court of India has quashed the February 12, 2018, circular for the resolution of stressed assets issued by the Reserve Bank of India (RBI) that had been challenged by various power companies. The RBI circular directed banks to refer defaulters to bankruptcy courts if they were unable to find a resolution plan within 180 days for stressed accounts in which the outstanding amount was more than Rs 20 billion. The Supreme Court has now stated that the impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law. The development is a huge relief to the power sector, which has 66,000 MW of power projects worth Rs 1.8 trillion classified as stressed assets. RBI will have to come up with a new restructuring framework following the court order. Lenders are now free to initiate fresh bankruptcy proceedings against companies, which were otherwise mandatorily referred for insolvency resolution under the circular.

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