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National Chair and Partner in the Finance &  Projects Practice at the Mumbai office of Cyril Amarchand Mangaldas. Viswanathan advises leading banks, financial institutions and private credit providers as well India’s largest corporates on financing, restructuring  and infrastructure projects.  He is currently advising on many insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. He can be reached at l.viswanathan@cyrilshroff.com

RBI Circular - Insolvency and Bankruptcy Blog

The Supreme Court’s judgment in Dharani Sugars and Chemicals Limited vs. Union of India is examined herein.

The Supreme Court in Dharani Sugars and Chemicals Limited vs. Union of India & Others (Dharani Sugars) has struck down the circular dated February 12, 2018, containing the revised framework for resolution of stressed assets (RBI Circular) issued by the Reserve Bank of India (RBI) on the ground of it being ultra vires Section 35AA of the Banking Regulation Act, 1949 (Banking Regulation Act).

Section 35AA was introduced by Parliament in 2017 to confer power on Central Government to authorise the RBI to give directions to any bank or banks to initiate an insolvency resolution process under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) in respect of ‘a default’. The RBI Circular was challenged, inter alia, on the basis that Section 35AA does not empower the RBI to issue directions for reference to the IBC of all cases without considering specific defaults.


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Sashidhar v. Indian Overseas Bank and Ors. – Commercial Wisdom Reigns Supreme

The Supreme Court’s decision in K. Sashidhar v. Indian Overseas Bank and Ors.[1]addressed a critical issue in the corporate insolvency resolution process (CIRP) – i.e. the scope of judicial scrutiny over a commercial decision taken by the committee of creditors (“CoC”) to approve or reject a resolution plan.
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Rights of Suspended Board - Vijay Kumar Jain v. Standard Chartered Bank

Upon commencement of the resolution process under the Insolvency and Bankruptcy Code, 2016 (Code), powers of the Board of Directors of the company stand suspended and are vested in and exercised by the resolution professional. While the directors are entitled to attend the meetings of the committee of creditors (COC) formed for the company, such directors have no voting rights.

A question arose over whether the directors should be given copies of the resolution plans and other confidential documents that the COC considers during the meetings. Sharing of such documents could be seen as in direct conflict with the obligations of the resolution professional to maintain confidentiality under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and other related regulations. More importantly, it could create positions of conflict between the suspended Board, who often submit resolution plans or are applicants under Section 12A, and the other participants. The Hon’ble Supreme Court in its recent judgment in Vijay Kumar Jain v. Standard Chartered Bank and Others[1] has, with great respect, left some questions unanswered.
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Swiss Ribbons vs. Union of India – The Foundation for Modern Bankruptcy Law

The authors instructed Mr. Tushar Mehta, Solicitor General of India, on behalf of the respondent Banks and Financial Institutions in the proceeding before the Supreme Court.

The Supreme Court’s decision in Swiss Ribbons v. Union of India upholding the constitutionality of the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC or the Code) is a landmark in the development of the Code.
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The Government of India and the Reserve Bank of India (RBI) have brought about several measures to resolve non-performing assets (NPAs). Several NPAs may have arisen from credit facilities that were sanctioned by banks as a commercial decision taken in good faith and in the ordinary course of conducting banking business. Equally there could be cases where NPAs arise as a result of siphoning of funds by the borrower or promoters or other connected entities.

Several serving and retired bankers have recently been charged and/or arrested on suspicion of criminal misconduct over alleged loan fraud under the Prevention of Corruption Act, 1988 (Principal Act). There have been instances of arrest of bank officials without any proof of quid pro quo or wrongdoings.


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By utilising its powers under Article 142 of the Indian Constitution, the Supreme Court of India has delivered an unprecedented decision on August 09, 2018 in Chitra Sharma & Ors. v. Union of India and Ors[1]., and other connected matters (the Jaypee / homebuyers Case)[2]. In this era of evolving jurisprudence on the Insolvency and Bankruptcy Code, 2016 (IBC), the Supreme Court, by this landmark decision, has settled some highly debated issues with respect to its implementation and has provided much required certainty. This has been achieved by the Supreme Court paving the way to reset the clock by re-commencing the Corporate Insolvency Resolution Process (CIRP).

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On April 21, 2018 the Fugitive Economic Offenders Ordinance, 2018 (FEO Ordinance) was promulgated to immediately bring into effect the provisions contained in the Fugitive Economic Offenders Bill, 2018 (FEO Bill)[1]. The Union Finance Minister Mr. Arun Jaitley, in his Budget speech, had announced that Central Government was considering the introduction of legislative changes to confiscate the assets of ‘big time offenders’, including economic offenders, who flee the country to escape the Indian legal system.

As the process of extradition has often been challenging and ineffective, the Ordinance seeks to compel the fugitive offender to face trial in India through severe deterrents. Care will need to be taken, however, to ensure that the Ordinance does not adversely impact creditor rights. The deterrents and their impact on insolvency resolution are discussed below.


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On June 6, 2018, the Government once again amended certain provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), by promulgating an ordinance[1] (the 2018 Ordinance) which introduces sweeping changes to the both substantive as well as procedural aspects relating to the insolvency process. Some of the key changes are analysed below.

Homebuyers – A New Class of ‘Financial Creditors’

The 2018 Ordinance has amended the definition of ‘financial debt’ to include amounts raised from ‘allottees’ in respect of a real estate project (as defined under the Real Estate (Regulations and Development) Act, 2016 (RERA)). Accordingly, homebuyers will now be entitled to a seat on the ‘committee of creditors’ (CoC) of the corporate debtor. However, given the large number of homebuyers for a project, they will be treated as a class of creditors and be represented in the CoC by an ‘authorised representative’ to be appointed by the National Company Law Tribunal (NCLT).


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In its judgment pronounced on May 9, 2018, the National Company Law Tribunal (NCLT), Allahabad, in the case of ICICI Bank Limited v. Mr. Anuj Jain (Resolution Professional of Jaypee Infratech Limited), addressed the issue of the rights of third-party security holders of a corporate debtor under the Insolvency and Bankruptcy Code, 2016 (IBC).

The judgment negated ICICI Bank Limited’s contention that it should be considered a financial creditor of Jaypee Infratech Limited, the corporate debtor. ICICI Bank’s claim was based on the corporate debtor having created mortgages on its property to secure loans provided to Jaiprakash Associates Limited, the holding company of the corporate debtor. The NCLT concluded that there was no financial debt owed to ICICI Bank by the corporate debtor, and so it could not be considered a financial creditor of the corporate debtor.

We consider here the correctness of the judgment and whether the NCLT has considered all the implications of its finding.


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Despite several existing schemes and interventions by the Reserve Bank of India (RBI), the problem of bad debt has plagued the Indian banking system. For years, various high value accounts have undergone restructurings that have not resolved stress or the underlying imbalance in the capital structure, or addressed the viability of the business.

The existing RBI stipulated resolution mechanism included corporate debt restructuring (CDR), strategic debt restructuring (SDR), change in ownership outside the strategic debt restructuring (Outside SDR), the scheme for sustainable restructuring of stressed assets (S4A), etc. All of these were implemented under the framework of the Joint Lenders’ Forum (JLF).

On February 12, 2018, the RBI decided to completely revamp the guidelines on the resolution of stressed assets and withdrew all its existing guidelines and schemes. The guidelines/framework for JLF was also discontinued.

The New Framework

The new framework requires that as soon as there is a default in a borrower entity’s account with any lender, the lenders shall formulate a resolution plan. This may involve any action, plan or reorganisation including change in ownership, restructuring or sale of exposure etc. The resolution plan is to be clearly documented by all the lenders even where there is no change in any terms and conditions.


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