Supreme Court quashes RBI’s circular on debt resolution under IBC

The Supreme Court of India has quashed the February 12, 2018 circular for resolution of stressed assets issued by the Reserve Bank of India (RBI), which was challenged by various power companies. The circular required banks to compulsorily implement a plan for debt resolution in a time-bound manner or refer the borrowers under the Insolvency and Bankruptcy Code. 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. The stressed power generators can now negotiate debt resolution on a bilateral basis with the lenders without going through the insolvency process. The move will benefit projects of several private developers such as Adani Power, JP Power, RattanIndia Power and KSK Energy Ventures.