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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Summary of Delhi HC Judgement of 13 3A SARFARESI

Can a secured creditor respond to a representation by a borrower, in response to a notice issued to him under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), beyond the mandatory period of 15 days (as stipulated under Section 13 (3A) of SARFAESI Act)?
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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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The Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016 (the Act) received assent of the President on August 12, 2016 and was  published in the Gazette on August 16, 2016. It will come into effect from such date(s) as may be notified by the Central Government. The Act makes far reaching changes to the way securitisation and reconstruction companies are regulated, as well as the category of financial assets and the secured creditors to whom non- judicial remedies and access to debt recovery tribunals are available. We try to examine this through this short post.

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The Indian banking system has been riddled with non performing assets (NPAs) for some time now. To help lenders, the Reserve Bank of India (RBI) has introduced a variety of debt restructuring policies, including the flexible structuring of project loans  and the strategic debt restructuring scheme. But these schemes have met with limited success, mostly due to the lack of funds available for promoters to invest, non-cooperation on the part of the borrowers and the sub-optimal levels of operations in the relevant companies.

The lukewarm economic environment has further amplified these woes. As such, ‘bad’ loans across 40 listed banks in India had increased to Rs. 5.8 trillion (approximately USD 85.9 billion) in March 2016 from Rs. 4.38 trillion (approximately USD 64.9 billion) in December 2015. Estimates show that weak assets in the Indian banking system will reach Rs. 8 trillion (approximately USD 118.5 billion) by March 2017.


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