Ankit Patni vs State Bank Of India & Anr

(Arising out of Order dated 3rd July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, in CA (IB) No. 366/KB/2018 in CP (IB) No. 176/KB/2018)

IN THE MATTER OF:

Ankit Patni ...Appellant

Vs

State Bank of India & Anr. ....Respondents

Present:

For Appellant: Ms. Sabya Sachi Chawdhury with Ms. Nandini Sen and Ms. Nikita Jhunjhunwala, Advocates.

For Respondents: Ms. Misha and Ms. Mrida, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

Mr. Ankit Patni, Promoter and Director of 'Impex Metal & Ferro Alloys

Limited'- ('Corporate Debtor') has preferred this appeal against the order

dated 3rd July, 2018, passed by the Adjudicating Authority (National

Company Law Tribunal), Kolkata Bench, Kolkata, whereby and

whereunder, the application preferred by the Respondent- 'State Bank of

India' under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('I&B

Code' for short) has been admitted.

Company Appeal (AT) (Insolvency) No. 369 of 2018 2

2. Learned counsel appearing on behalf of the Appellant submitted that

the 'Banking Regulation Act, 1949' has been amended w.e.f. May, 2017, to

empower Reserve Bank of India to issue directions to initiate insolvency

resolution process in respect of a 'default' under the provisions of the 'I&B

Code'.

3. It was submitted that Section 35AA of the 'Banking Regulation Act,

1949', empowers the Central Government to authorize Reserve Bank of

India to issue directions to Banking Companies to initiate insolvency

resolution process in respect of a default under the provisions of the 'I&B

Code'. According to him, the 'default' has the same meaning as defined in

Section 3(12) of the 'I&B Code'.

4. Referring to Section 35AB (1) of the 'Banking Regulation Act, 1949', it

was submitted that the same confers power upon Reserve Bank of India to

issue directions to the Banking Companies for resolution of stressed assets.

5. Learned counsel for the Appellant submitted that in exercise of power

under Section 35AB, the Reserve Bank of India has issued three directions

which, according to him, are for the following objectives:

i. On 22nd May, 2017:- Under Clause 5 whereof the Reserve

Bank of India is working on a framework to facilitate an

objective and consistent decision making process with

regard to cases that may be determined for resolution under

'I&B Code'. Under Clause 6 current guidelines on restructuring

Company Appeal (AT) (Insolvency) No. 369 of 2018 3

was also under examination for such modification as may be

necessary. Under Clause 8 the Reserve Bank of India was to

issue further updates.

ii. On 13th June, 2017:- The Internal Advisory Committee in

terms of Clause 3 arrived at an objective and non-

discretionary criteria for referring accounts for resolution

under 'I&B Code'. Those higher than Rs. 5000 Crore, there

immediate recommendation for reference is to be made under

'I&B Code' made. As regards other non-performing accounts

6 months' time has been allowed for viable resolution plan in

terms of Clause 4. The details of such resolution framework

was to be "released in the coming days" in terms of Clause

6.

iii. On 12th February, 2018:- The revised framework for other

non-performing accounts was published to substitute the

existing guidelines with the harmonized and simplified

generic framework for resolution of stressed assets. The

timelines for large account to be referred under 'I&B Code' was

also provided. Accounts with aggregate exposure at Rs. 20

billion and above dealt with timelines mentioned in clause 8 to

11. For other accounts with aggregate exposure below 20

billion and above 1 billion Reserve Bank of India intended

to announce over a two-year period reference dates for

implementing the resolution plan to ensure calibrated,

Company Appeal (AT) (Insolvency) No. 369 of 2018 4

time bound resolution of all such accounts in default.

Under Clause 13, the aforesaid arrangement would not be

available for borrowers where specific instructions have been

issued by the Reserve Bank of India to the Banks for reference

under the 'I&B Code' but lenders have been allowed to continue

to pursue such cases as per earlier instructions. There is no

specific instruction issued regarding the present case which

falls under Clause 12. Under Clause 20, it is made clear that

the guidelines are issued in exercise of powers conferred

under Sections 35A, 35AA and 35AB of the 'Banking

Regulation Act, 1949' and Section 45 L of the Reserve

Bank of India Act, 1034.

6. It was submitted that the effect of the aforesaid directions and the

Press Release dated 13th June, 2017 is that Reserve Bank of India were

required to provide revised framework for other non-performing accounts

which will be released in the coming days. A Circular has been issued on

12th February, 2018 showing the Revised Framework in terms of guideline

dated 13th June, 2017, issued by the Reserve Bank of India under Sections

35A, 35AA and 35AB of the 'Banking Regulation Act, 1949' read with Section

45 L of the Reserve Bank of India Act, 1934.

7. According to learned counsel for the Appellant, the aforesaid circular

is binding on Banking Companies and has statutory force, the State Bank of

India is also bound by the Circulars dated 13th June, 2017 and 12th

Company Appeal (AT) (Insolvency) No. 369 of 2018 5

February, 2018, and was required to wait for the publication of the revised

framework in terms of Clause 6 thereof. Further, according to him, since

pursuant to circular dated 12th February, 2018 two-years period have been

provided for issuance of reference dates in respect of the category of the

Appellant, the State Bank of India should have waited for two years.

8. According to learned counsel for the Appellant, as the State Bank of

India was bound by the direction of the Reserve Bank of India and is

required to follow the statutory mandate, the application under Section 7 as

preferred by the State Bank of India was not maintainable which otherwise

will defeat the guidelines issued by the Reserve Bank of India.

9. Learned counsel appearing on behalf of the State Bank of India

submitted that 12th February, 2018 Circular is not applicable for filing an

application under Section 7 of the 'I&B Code'. According to him, the 12th

February, 2018 Circular specifically notes that the timelines specified in the

Circular are only upper limits and that the Banks are free to invoke the

provisions of the 'I&B Code' prior to the time-limits indicated in the said

Circular.

10. Similar plea has been taken with regard to earlier Circular of June,

2017.

11. We have heard learned counsel for the parties and perused the

records.

Company Appeal (AT) (Insolvency) No. 369 of 2018 6

12. Section 35 AA of the 'Banking Regulation Act, 1949' empowers the

Central Government to authorize the Reserve Bank of India to issue

directions to any Banking Company. Section 35 AB empowers the Reserve

Bank of India to issue directions to the Banking Companies for resolution of

stressed assets. The aforesaid provision reads as follows:

"35AA. Power of Central Government to

authorize Reserve Bank for issuing directions to

banking companies to initiate insolvency

resolution process.− The Central Government may

be order authorize the Reserve Bank of India to issue

directions to any banking company or banking

companies to initiate insolvency resolution process in

respect of a default, under the provisions of the

Insolvency and Bankruptcy Code, 2016.

Explanation.− For the purpose of this section,

"default" has the same meaning assigned to it in

clause (12) of section 3 of the Insolvency and

Bankruptcy Code, 2016.

35AB.− Power of Reserve Bank to issue

directions in respect of stressed assets.− (1)

Without prejudice to the provisions of section 35A, the

Reserve Bank may, from time to time, issue directions

Company Appeal (AT) (Insolvency) No. 369 of 2018 7

to the banking companies for resolution of stressed

assets.

(2) The Reserve Bank may specify one or more

authorities or committees with such members as the

Reserve Bank may appoint or approve for

appointment to advise banking companies on

resolution of stresses assets."

13. On 22nd May, 2017, the 'Reserve Bank of India' outlined the action

plan to implement the Banking Regulation (Amendment) Ordinance, 2017'.

On promulgation of the Ordinance, the Reserve Bank of India issued a

directive bringing the following changes to the existing regulations which

deals with stressed assets. Clauses 5 and 6 are as follows:

"5. The Reserve Bank is working on a framework

to facilitate an objective and consistent decision

making process with regard to cases that may be

determined for reference for resolution under the IBC.

Reserve Bank has already sought information on the

current status of the large stressed assets from the

banks. The RBI would also be constituting a

Committee comprised majorly of its independent

Board Members to advise it in this matter.

6. The current guidelines on restructuring are

under examination for such modifications as may be

Company Appeal (AT) (Insolvency) No. 369 of 2018 8

necessary to resolve the large stressed assets in the

banking system in a value optimizing manner. The

Reserve Bank envisages an important role for the

credit rating agencies in the scheme of things and,

with a view to preventing rating-shopping or any

conflict of interest, is exploring the feasibility of rating

assignments being determined by the Reserve Bank

itself and paid for from a fund to be created out of

contribution from the banks and the Reserve Bank.

14. On bare perusal of the 13th June, 2017 and the 12th February, 2018

Circulars, it is clear that they are not applicable in the present case. The 13th

June, 2017 Circular only provides directions for initiating 'Corporate

Insolvency Resolution Process' under the 'I&B Code' for certain 'identified

accounts'. The 12th February, 2018 Circular has come into effect after the

filing of the application under Section 7 by the State Bank of India.

Therefore, the said Circular is not applicable in the present case.

15. The directions of the Reserve Bank of India also suggest that the

Reserve Bank of India never intended to interfere with the statutory remedy

of resolution process under the 'I&B Code'. Those Circulars also cannot

override the provisions of the 'I&B Code'.

16. The right of the Creditors under the 'I&B Code' for initiation of

'Corporate Insolvency Resolution Process' is a statutory right. The 'I&B

Company Appeal (AT) (Insolvency) No. 369 of 2018 9

Code' is a special enactment passed by the legislature and is a complete

Code in itself. The Adjudicating Authority needs only to be satisfied of the

existence of a debt and default if any. Once the Adjudicating Authority is

satisfied, and the application is complete, then the application is required to

be admitted.

17. In the present case, as we find that there is no dispute about debt or

default and the same has not been denied by the 'Corporate Debtor', the

present appeal being devoid any merit is dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

29th November, 2018

AR

Company Appeal (AT) (Insolvency) No. 369 of 2018