Supreme Court Permits Withdrawal Of SLP Filed By Jayaswal Neco Industries Ltd. Against RBI , Imposing A Cost Of Rs - 10 Lakh

The Supreme Court Bench comprising of Justice U.U. Lalit and Justice S. Ravindra Bhat, while adjudicating a Special Leave Petition (SLP) filed in Jayaswal Neco Industries Limited & Another v Reserve Bank of India & Ors., has allowed withdrawal of the SLP subject to costs. The sole consideration behind permitting withdrawal was that nine lenders of the Petitioner, which were Public Sector Financial Corporations/Banks, had assigned their debts to Assets Care & Reconstruction Enterprise Ltd. ("ACRE"), if withdrawal was not permitted then these public sector lenders may have to refund huge sums of money. The order was passed on 04.05.2022. Background Facts Jayaswal Neco Industries Ltd. ("Petitioner") had a large quantum of stressed assets and it was classified as Non Performing Assets (NPA) on 31.01.2015. The Reserve Bank of India had released the framework for revitalizing distressed assets in the economy and had accordingly issued guidelines for formation of Joint Lenders Forum (JLF) and adoption of Corrective Action Plan (CAP) for operationalizing the framework. In context of the Petitioner, the JLF consisted of 12 banks including the State Bank of India (SBI) as the lead lender and PNB, Union Bank of India, Central Bank of India, Oriental Bank of Commerce, Indian Overseas Bank, IDBI Bank, Bank of India, Bank of Maharashtra, ICICI Bank, Andhra Bank and UCO Bank. The JLF's first meeting was held on 17.03.2017 wherein, it was decided to hold back National Company Law Tribunal ("NCLT") proceedings till April 2017 and on 07.09.2017 the restructuring scheme of the Petitioner was approved with supermajority. On 28.08.2017, the RBI issued directions stating that any resolution plan finalized outside Insolvency and Bankruptcy Code, 2016 ("IBC"), will be subject to the rating requirement i.e. the residual debt must be rated as an investment grade by two external Credit Rating Agency ("CRA") accredited by the RBI. Further, the RBI vide circular dated 13.06.2017 had prescribed time limit of 6 months for finalizing the resolution plan outside the IBC and through its communication dated 30.11.2017 it had informed SBI that the deadline for finalization and implementation of resolution plan was 13.12.2017 and the following three conditions were to be fulfilled by the due date: Obtaining required credit opinions for the resolution plans from two CRAs; The Master Restructuring Agreement signed by all the parties and; iii. The requirements relating to the promoter's contribution to be brought upfront and personal guarantees to be provided by the promoters. The SBI appointed two accredited CRAs i.e. CARE and SMERA on 21.09.2017 and 28.09.2017. However, the RBI issued a circular on 29.09.2017 and decided that it would assign two CRAs for each proposal and make payment to such CRAs. Before issuance of directions dated 29.09.2017 by the RBI, the SBI on behalf of JLF had already appointed the two CRAs and the work had also commenced. Therefore, SBI tendered two representations to RBI dated 17.10.2017 and 06.12.2017, highlighting that two CRAs i.e. CARE and SMERA have already been appointed and they must be ratified. The RBI did not respond to the representations and hence there was no instruction to the SBI to discontinue with such appointment. On 07.12.2017, the RBI confirmed the credit opinion obtained from CARE and directed the SBI to obtain a fresh rating from India Ratings and Research Private Limited ("IRRPL"). In a meeting of JLF conducted on 12.12.2017, it was confirmed that 10 out of 12 lenders of the Petitioner barring Oriental Bank of Commerce and IDBI Bank, with around 92% of the value had sanctioned the restructuring scheme. The Lender Legal Council (LLC) had advised that the Master Restructuring Agreement ("MRA") could be signed in the absence of sanction from 2 member banks. Accordingly, the MRA was executed by ten lenders on 12.12.2017 and was handed over to the SBI. However, the RBI issued a circular dated 12.02.2018, whereby it revised its policy on stressed asset restructuring and discontinued the JLF scheme by stating that the accounts where the JLF schemes was invoked but not yet implemented, shall be governed by the revised framework. RBI was of the opinion that the Petitioner had failed to implement the MRA and therefore, shall now be governed by revised guidelines. Proceedings Before The Bombay High Court The Petitioner filed a writ petition before the Bombay High Court challenging the following actions by RBI: Retrospective application of internal communications dated 29.09.2017 and 30.11.2017; Stalling of the implementation of Master Restructuring Agreement (MRA) dated 12.12.2017, Failure to consider Petitioner's representations dated 15.12.2017, 16.12.2017, 22.12.2017 and 26.12.2017; and iv. Failure to consider the credit opinion obtained from SMERA, which ...

Supreme Court Permits Withdrawal Of SLP Filed By Jayaswal Neco Industries Ltd. Against RBI , Imposing A Cost Of Rs - 10 Lakh

Pallavi Mishra

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Supreme Court Permits Withdrawal Of SLP Filed By Jayaswal Neco Industries Ltd. Against RBI , Imposing A Cost Of Rs - 10 Lakh

Pallavi Mishra

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