Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2019 Supreme(SC) 385

SUPREME COURT OF INDIA
R.F. Nariman, Vineet Saran, JJ.
Dharani Sugars And Chemicals Limited - Appellant
Vs.
Union of India And Others - Respondents
Transferred Case (Civil) No. 66 of 2018 in Transfer Petition (Civil) No. 1399 of 2018 With Writ Petition (Civil) No. 339 of 2018 Writ Petition (Civil) No. 802 of 2018 Writ Petition (Civil) No. 1086 of 2018 Writ Petition (Civil) No. 1110 of 2018 Writ Petition (Civil) No. 1124 of 2018 Writ Petition (Civil) No. 1142 of 2018 Writ Petition (Civil) No. 1138 of 2018 Writ Petition (Civil) No. 1156 of 2018 Writ Petition (Civil) No. 1153 of 2018 Writ Petition (Civil) No. 1166 of 2018 Writ Petition (Civil) No. 1206 of 2018; Writ Petition (Civil) No. 1212 of 2018 Writ Petition (Civil) No. 1236 of 2018 Writ Petition (Civil) No. 1296 of 2018 SLP(C) NO. 31421 OF 2018 Writ Petition (Civil) No. 1316 of 2018 Writ Petition (Civil) No. 1308 of 2018 Writ Petition (Civil) No. 1359 of 2018; Transferred Case (Civil) No. 65 of 2018 in Transfer Petition (Civil) No. 1404 of 2018; Writ Petition (Civil) No. 1363 of 2018 Writ Petition (Civil) No. 1364 of 2018 Writ Petition (Civil) No. 1374 of 2018; Transferred Case (Civil) No. 71 of 2018 in Transfer Petition (Civil) No. 1283 of 2018; Transferred Case (Civil) No. 73 of 2018 in Transfer Petition (Civil) No. 1285 of 2018; Transferred Case (Civil) No. 72 of 2018 in Transfer Petition (Civil) No. 1284 of 2018; Transferred Case (Civil) No. 75 of 2018 in Transfer Petition (Civil) No. 1287 of 2018transferred Case (Civil) No. 76 of 2018 in Transfer Petition (Civil) No. 1288 of 2018; Transferred Case (Civil) No. 74 of 2018 in Transfer Petition (Civil) No. 1286 of 2018; Transferred Case (Civil) No. 70 of 2018 in Transfer Petition (Civil) No. 1403 of 2018; Transferred Case (Civil) No. 69 of 2018 in Transfer Petition (Civil) No. 1402 of 2018; Transferred Case (Civil) No. 68 of 2018 in Transfer Petition (Civil) No. 1401 of 2018; Transferred Case (Civil) No. 67 of 2018 in Transfer Petition (Civil) No. 1400 of 2018; Writ Petition (Civil) No. 1383 of 2018 Writ Petition (Civil) No. 1402 of 2018 Writ Petition (Civil) No. 1400 of 2018 Writ Petition (Civil) No. 1391 of 2018 Writ Petition (Civil) No. 1411 of 2018 Writ Petition (Civil) No. 1410 of 2018 Writ Petition (Civil) No. 1438 of 2018; Writ Petition (Civil) No. 22 of 2019 Writ Petition (Civil) No. 1502 of 2018; Writ Petition (Civil) No. 8 of 2019; Writ Petition (Civil) No. 9 of 2019; Writ Petition (Civil) No. 14 of 2019; Writ Petition (Civil) No. 36 of 2019; Writ Petition (Civil) No. 50 of 2019; Writ Petition (Civil) No. 81 of 2019; Writ Petition (Civil) No. 117 of 2019; Writ Petition (Civil) No. 246 of 2019; Writ Petition (Civil) No. 278 of 2019
Decided On : 02-04-2019

Advocates Appeared:
For Parties: Mr. Rakesh Dwivedi, Sr. Adv. Mr. Vivek Shetty, Adv. Mr. Jahan Chokshi, Adv. Ms. Liz Mathew, AOR Ms. Sansriti Pathak, Adv. Mr. Eklavya Dwivedi, Adv. Mr. Navneet R., Adv. Mr. Raghav Mehrotra, Adv. Mr. Siddharth Iyer, Adv. Mr. S.B. Upadhyay, Sr. Adv. Mr. Kaustubh Shukla, AOR Mr. Ankit Pandey, Adv. Mr. Abhay Singh, Adv. Mr. Parijat Kishore, Adv. Mr. Hasan Murtaza, Adv. Mr. Nischal Gupta, Adv. Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Samar Kachwaha, Adv. Ms. Chanan Parwani, Adv. Ms. Shalini Kaul, AOR Ms. Divya Kapur, Adv. Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Pranaya Goyal, AOR Mr. Aman Gandhi, Adv. Mr. Deepak Joshi, Adv. Mr. Devanshu Sajlan, Adv. Mr. Akash Lamba, Adv. Mr. Abhishek Sharma, Adv. Mr. Yash Badkur, Adv. Mr. P.S. Narasimha, Sr. Adv. Mr. Ananga Bhattacharyya, Adv. Mr. Rohit Rao N., Adv. Devahuti Tamuli, Adv Mr. Shourya Garg, Adv. For M/s. Veritas Legis, AOR Mr. Bishwajit Dubey, Adv. Ms. Srideepa Bhattacharyya, Adv. Mr. Aditya Marwah, Adv. Ms. Ruchi Choudhuri, Adv. Mr. Manpreet Lamba, Adv. For M/s. Cyril Amarchand Mangaldas, AOR Mr. Arvind Kumar Gupta, Adv. Mrs. Purti Marwaha, Adv. Mrs. Henna George, Adv. Mrs. V.S. Lakshmi, Adv. Mr. A.V. Balan, AOR Mr. Ajay Bhargava, Adv. Wamika Trehan, Adv. Ms. Maithili Moondra, Adv. Mr. E.C. Agrawala, AOR Mr. Anand Shankar Jha, AOR Mr. Arpit Gupta, Adv. Mr. Udit Kishan, Adv. Mr. Pulkit Deora, Adv. Mr. M.N. Mukunda, Adv. For M/s. Udit Kishan And Associates, AOR Mr. Sudarsh Menon, AOR Ms. Nimisha Menon, Adv. Ms. Pragya Ohri, Adv. Mr. Abhirup Dasgupta, Adv. Mr. Ishaan Duggal, Adv. Mr. Mohit D. Ram, AOR Mr. Arvind Kumar Shukla, Adv. Ms. Reetu Sharma, Adv. Mr. Kunal Yadav, Adv. Mrs. Neena Shukla, Adv. Mr. Nihal Ahmad, Adv. Mr. N.K. Gaur, Adv. Mr. Hardik Luthra, Adv. Mr. Alok Shukla, AOR Ms. Reetu Sharma, AOR Ms. Neena Shukla, Adv. Ms. Rakee Garg, Adv. Ms. Meera Mathur, AOR Mr. Rahul Kumar, Adv. Ms. Hima Lawrence, AOR Mr. Vikram Hegde, Adv. Mr. Chanchal Kumar Ganguli, AOR Mr. Naresh Kaushik, Adv. Mr. Vardhman Kaushik, Adv. Mr. Rahul Sharma, Adv. Mr. Manoj Joshi, Adv. Mr. B. Purushothama Reddy, Adv. Mr. Omungraj Gupta, Adv. Rebbeca Dais, Adv. Devik Singh, Adv. Mrs. Lalita Kaushik, AOR Mr. P.V. Dinesh, Adv. Ms. T.P. Sindhu, Adv. Mr. Mukund P. Unny, Adv. Mr. Bineesh K., Adv. M/s. Indialaw, AOR Mr. Som Raj Choudhury, AOR Mr. Prashant Kumar, Adv. Mr. Rajesh Kr. Gautam Adv. Mr. Anant Gautam, Adv. Ms. Khushboo Aggarwal, Adv. Mr. Anmol Mehta, Adv. Mr. Rajesh Kumar-I, AOR Mr. Birjesh Kumar Sinha, AdvMr. Birjesh Kumar Sinha, Adv. Mr. Hitesh Kumar Sharma, Adv. Ms. Meetali Patel, Adv. Mr. Arvind Kumar Sharma, AOR Mr. Alok Dhir, Adv. Ms. Maneesha Dhir, Adv. Mr. Ashu Kansal, Adv. Ms. Varsha Banerjee, Adv. Mr. Karan Batura, Adv. Mr. Milan Singh Negi, Adv. Ms. Stuti Vatsa, Adv. Mr. Kunal Godhwani, Adv. Mr. T. V. S. Raghavendra Sreyas, AOR Mr. Shikhil Suri, Adv. Mr. Shiv Kumar Suri, AOR Ms. Shilpa Saini, Adv. Ms. Vinishma Kaul, Adv. Mr. Prasanna S., Adv. Mr. Aakarsh Kamra, AOR Mr. Gaurav Aggarwal, AOR Mr. Suresh Dobhal, Adv. Ms. Sonakshi Dhiman, Adv. Mr. Prarthna Dogra, Adv. Mr. E.R. Kumar, Adv. Mr. D.P. Mohanty, Adv. Ms. Sonal Gupta, Adv. Mr. Ishan Nagar, Adv. Mr. Raghav Bansal, Adv. For M/s. Parekh & Co., AOR Mr. Vipin Kumar Jai, AOR Mr. Dushyant Parashar, Adv. Mr. Vipul Jai, Adv. Shailly Dinkar, Adv. Ms. Praveena Gautam, AOR Mr. Pawan Shukla, Adv. Mr. Jitesh P. Gupta, Adv. Mr. Raja Ram, Adv. Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Bharath Gangadharan, Adv. Mr. Kauser Husain, Adv. Ms. Shubhra Kapur, Adv. Mr. Anil Kumar Sangal, AOR Mr. Siddharth Sangal, Adv. Ms. Nilanjani Tandon, Adv. Mr. Chandrashekhar A. Chakalabbi, Adv. Mr. S.K. Pandey, Adv. Mr. Awanish Kumar, Adv. Mr. Anshul Rai, Adv. For M/s. Dharmaprabhas Law Associates, AOR Ms. Vandana Sehgal, AOR Attorney General For India Mr. Nikhil Jain, AOR Mr. Balaji Srinivasan, AOR Ms. Diksha Rai, AOR Mr. Rajiv Shankar Dvivedi, AOR Mr. Vanshdeep Dalmia, AOR Ms. Kusum Lata, AORMr. Pukhrambam Ramesh Kumar, AOR Mr. O. P. Gaggar, AOR Ms. Astha Sharma, AOR Mr. Rajesh Singh, AOR Mr. Brijesh Kumar Tamber, AOR Mr. Rabin Majumder, AOR Dr. Vinod Kumar Tewari, AOR Ms. Suruchii Aggarwal, AOR Mr. Ashish Rana, AOR Mr. T. Mahipal, AOR Mr. Arun Aggarwal, AOR Ms. Divya Roy, AOR Mr. Rajesh P., AOR Mrs. Anil Katiyar, AOR Mr. Puneet Singh Bindra, AOR Garima Bajaj, AOR Mr. Abhishek Agarwal, AOR Mr. Neeraj Shekhar, AOR Mr. Satish Kumar, AOR Mr. Divyam Agarwal, AOR Mr. S. S. Shroff, AOR Ms. Usha Nandini V., AOR

IMPORTANT POINTS
(1) Economic legislation is to be viewed with great latitude.
(2) RBI Circular issued on 12.02.2018 promulgating revised framework for resolution of stressed assets, is ultra vires Section 35AA of Banking Regulation Act.
(3) When one section of a statute grants general powers, as opposed to another section of same statute which grants specific powers, general provisions cannot be utilised where a specific provision has been enacted with a specific purpose in mind.

Headnote:(A) Banking Regulation Act, 1949 – Sections 35AA and 35AB – Constitutional validity – RBI Circular issued on 12.02.2018 promulgating revised framework for resolution of stressed assets – Economic legislation is to be viewed with great latitude – Article 14 may be infracted by legislation on the ground of such legislation being manifestly arbitrary – Petitioners have not been able to point out as to how either of these provisions is manifestly arbitrary – They are not excessive in any way nor do they suffer from want of any guiding principle – These amendments are in nature of amendments which confer regulatory powers upon RBI to carry out its functions under Banking Regulation Act, and are not different in quality from any of Sections which have already conferred such power – RBI may control advances made by banking companies in public interest and in so doing, may not only lay down policy but may also give directions to banking companies either generally or in particular – Similarly, under Section 35A, vast powers are given to issue necessary directions to banking companies in public interest, in interest of banking policy, to prevent affairs of any banking company being conducted in a manner detrimental to interest of depositors or in a manner prejudicial to interest of banking company or to secure proper management of any banking company – These provisions which give RBI certain regulatory powers cannot be said to be manifestly arbitrary. (Para 16)
       (B) Banking Regulation Act, 1949 – Sections 35AA and 35AB – Constitutional validity – RBI Circular issued on 12.02.2018 promulgating revised framework for resolution of stressed assets – When it comes to lack of any guidelines by which power given to RBI is to be exercised, such guidance can be obtained not only from Statement of Objects and Reasons and Preamble to the Act, but also from its provisions – There was no dearth of guidance for RBI to exercise powers delegated to it by these provisions – Plea of constitutional validity fails. (Para 17)
       (C) Banking Regulation Act, 1949 – Sections 35AA and 35AB – Constitutional validity – RBI Circular issued on 12.02.2018 promulgating revised framework for resolution of stressed assets – There is nothing in Section 35A which would indicate that power of the RBI to give directions when it comes to Insolvency Code, cannot be so given – Width of language used in provision which only uses general words such as ‘public interest’ and ‘banking policy’ etc. makes it clear that if otherwise available, Court cannot interdict use of Section 35A as a source of power for impugned RBI circular on the ground that Insolvency Code, 2016 could not be said to have been in contemplation of Parliament in 1956, when Section 35A was enacted – If a specific provision of Banking Regulation Act makes it clear that RBI has a specific power to direct banks to move under Insolvency Code against debtors in certain specified circumstances, it cannot be said that they would be acting outside four corners of statutes which govern them, namely, RBI Act and Banking Regulation Act. (Paras 24 and 26)
       (D) Banking Regulation Act, 1949 – Sections 35AA and 35AB – Constitutional validity – RBI Circular issued on 12.02.2018 promulgating revised framework for resolution of stressed assets – Power to issue directions given by Section 35AB is in addition to power that is given under Section 35A – Power to issue directions given by Section 35AB is without prejudice only to provisions of Section 35A, i.e., it has to be read in conjunction with Section 35A – Power under Section 35AB, read with Section 35A, is to be exercised separately from power conferred by Section 35AA – When one section of a statute grants general powers, as opposed to another section of same statute which grants specific powers, general provisions cannot be utilised where a specific provision has been enacted with a specific purpose in mind – Stressed assets can be resolved either through Insolvency Code or otherwise – When resolution through the Code is to be effected, specific power granted by Section 35AA can alone be availed by RBI – When resolution de hors the Code is to be effected, general powers under Sections 35A and 35AB are to be used – Any other interpretation would make Section 35AA otiose. (Paras 35, 36, 39 and 40)
       (E) Banking Regulation Act, 1949 – Sections 35AA and 35AB read with Section 45L(3) – Constitutional validity – RBI Circular issued on 12.02.2018 promulgating revised framework for resolution of stressed assets – Impugned circular is ultra vires Section 35AA of Banking Regulation Act – There is nothing to show that provisions of Section 45L(3) have been satisfied in issuing impugned circular – Impugned circular applies to banking and non-banking institutions alike – Such non-banking financial institutions are inseparable from banking institutions insofar as application of impugned circular is concerned – It is very difficult to segregate non-banking financial institutions from banks so as to make circular applicable to them even if it is ultra vires insofar as banks are concerned – Impugned circular will have to be declared as ultra vires as a whole and be declared to be of no effect in law – Consequently, all actions taken under said circular, including actions by which Insolvency Code has been triggered must fall along with said circular – As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of Insolvency Code, only because of operation of impugned circular will be proceedings which, being faulted at the very inception, declared to be non-est. (Paras 45 and 46)
       Facts of Case:
       Present batch of petitions and transferred cases raise questions as to constitutional validity of Sections 35AA and 35AB of Banking Regulation Act, 1949 introduced by way of amendment w.e.f. 04.05.2017. Real bone of contention is a Reserve Bank of India Circular issued on 12.02.2018, by which RBI promulgated a revised framework for resolution of stressed assets. Salient features of this circular are that restructuring in respect of borrower entities de hors Insolvency and Bankruptcy Code, 2016 can only occur if resolution plan that involves restructuring is agreed to by all lenders, i.e., 100 per cent concurrence.
       Findings of Court:
       There is nothing to show that provisions of Section 45L(3) have been satisfied in issuing impugned circular. Impugned circular nowhere says that RBI has had due regard to conditions in which and objects for which such institutions have been established, their statutory responsibilities and effect business of such financial institutions is likely to have on trends in money and capital markets.
       Result : Transferred cases and petitions disposed of.

JUDGMENT :

R.F. Nariman, J.

The present batch of petitions and transferred cases raise questions as to the constitutional validity of Sections 35AA and 35AB of the Banking Regulation Act, 1949 ["Banking Regulation Act"] introduced by way of amendment w.e.f. 04.05.2017. The real bone of contention is a Reserve Bank of India ["RBI"] Circular issued on 12.02.2018, by which the RBI promulgated a revised framework for resolution of stressed assets. The important clauses of the aforesaid circular are set out here-in-below:

"Resolution Framework of Stressed Assets - Revised

1. The Reserve Bank of India has issued various instructions aimed at resolution of stressed assets in the economy, including introduction of certain specific schemes at different points of time. In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets. The details of the revised framework are elaborated in the following paragraphs.

1. Revised Framework
A. Early identification and reporting of stress
2. Lenders [Lenders under these guidelines would generally include all scheduled commercial banks (excluding RRBs) and All India Financial Institutions, unless specified otherwise.] shall identify incipient stress in loan accounts, immediately on default ['Default' means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. For revolving facilities like cash credit, default would also mean, without prejudice to the above, the outstanding balance remaining continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than 30 days.], by classifying stressed assets as special mention accounts (SMA) as per the following categories:

SMA Sub-categories

Basis for classification Principal or interest payment or any other amount wholly or partly overdue between

SMA-0

1-30 days

SMA-1

31-60 days

SMA-2

61-90 days

3. As provided in terms of the circular DBS.OSMOS.No.14703/33.01.001/2013-14 dated May 22, 2014 and subsequent amendments thereto, lenders shall report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC) on all borrower entities having aggregate exposure[Aggregate exposure under the guidelines would include all fund based and non-fund based exposure with the lenders.] of Rs. 50 million and above with them. The CRILC-Main Report will now be required to be submitted on a monthly basis effective April 1, 2018. In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs. 50 million and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday. The first such weekly report shall be submitted for the week ending February 23, 2018.
B. Implementation of Resolution Plan
4. All lenders must put in place Board-approved policies for resolution of stressed assets under this framework, including the timelines for resolution. As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps to cure the default. The resolution plan (RP) may involve any actions/plans/reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities/investors, change in ownership, or restructuring [Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower's financial difficulty (An illustrative non-exhaustive list of indicators o

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SMA Sub-categories	Basis for classification Principal or interest payment or any other amount wholly or partly overdue between
SMA-0	1-30 days
SMA-1	31-60 days
SMA-2	61-90 days

2019 Supreme(SC) 385

Cases Referred (21)