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In a breather to stressed companies, the Supreme Court on Tuesday put an interim stay on the Reserve Bank of India’s February 12 circular asking banks to scrap all debt restructuring and begin insolvency process if a company delays payment even by a day.
There are about 70 such assets of which about 30 are in the power sector and the mix includes textile and shipping sectors. The apex court will hear the matter again on November 11.
The Allahabad High Court, on August 27, had refused to stay the RBI circular. This meant that the banks had another 15 days to find a resolution or put all the assets under the insolvency process.
This grace period came to an end on Tuesday. Therefore, the apex court’s intervention is a breather to the companies and banks to cobble up a solution by November 11, according to experts.
Four power companies
At least four power companies, including Punj Lloyd, GMR, RattanIndia and IL&FS, had moved the Allahabad High Court, the Delhi High Court and the Madras High Court seeking relief from the RBI circular.
The Supreme Court has transferred all pleas filed before the various High Courts to itself while asking the RBI and parties to maintain status quo with regards to insolvency proceedings. The stay on RBI circular from the Supreme Court will now make it impossible for the lenders to take any power company to NCLT, experts note.
“We welcome the idea, it’s a great relief to the power sector and basically saves about 13-14 GW of assets from being referred to NCLT. This gives adequate time to bankers to finalise resolution plans. the majority of resolutions are at the final stage,” Ashok Khurana, Director General of Association of Power Producers, told BusinessLine .
He added that having around two months in hand will help lenders complete all documentation work related to finalising resolution plans through change of management route or via one-time settlements. The projects where the resolution have been almost finalised through change of management include KSK Mahandi, GMR’s Raikheda and Chhattisgarh plants, Prayagraj Power, RattanIndia Power’s Amravati and Nashik projects, Essar Mahan and other projects.
More time
According to Khurana, the Supreme Court order also gives time to the High Level Empowered Committee formed by the government in July this year to address the issues of thermal power sector and headed by Cabinet Secretary to prepare the report, which is due for the High Court judgment in the end of September.
“So before the next hearing of the Supreme Court in November, we will know how all the stress points of the sector are being remedied as per the report of the Committee which will give more clarity (to the industry),” Khurana added.
Vishrov Mukerjee, Partner, J Sagar Associates, which represented the Association, GMR and RattanIndia before the Allahabad High Court and the Supreme Court, said: “The power companies have challenged the RBI circular on the basis that power sector is differently placed as a lot of reasons for the stress in the sector are external.”
He added that while it is to be seen how the banks will react to the apex court’s status quo order, ideally, the resolution process should now continue.
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