In a big setback to efforts for recovery of bad debts of companies owing Rs 2,000 crore or more to banks, the Supreme Court on Tuesday quashed the RBI’s February 12, 2018, circular, which directed banks to move against defaulters under the Insolvency and Banking Code (IBC) on their failure to pay up within 180 days from March 1, 2018.
A bench comprising Justices R F Nariman and Vineet Saran also quashed all IBC proceedings initiated by banks under the RBI circular against defaulters. Thus, the SC turned the clock back to March 1, 2018, giving a huge relief to defaulters who owe Rs 2,000 crore or more to banks. “All actions taken under the said circular, including action by which the Insolvency Code has been triggered, must fall along with the said circular,” it said.
However, this ruling will not affect initiation of IBC proceedings by banks against big defaulters taken before, or independent of, the RBI circular. One such example is the IBC proceedings launched by an SBIled consortium against Essar Steel, which on culmination of proceedings is set to be taken over by Arcelor Mittal. Essar Steel had a debt of Rs 45,000 crore.
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