SC sets aside RBI circular on debt resolution

The Supreme Court of India has quashed the February 12, 2018 circular for the 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 will be of no effect in law. The development is a huge relief for the power sector that 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 an insolvency process.