Mumbai, July 26: With some large stressed firms challenging RBI’s directives to banks to initiate proceedings against them under the Insolvency and Bankruptcy Code (IBC) in high courts, Reserve Bank deputy governor SS Mundra Wednesday said nobody can be prevented from approaching the judiciary.
The National Company Law Tribunal Wednesday allowed banks to initiate insolvency proceedings against Bhushan Steel and Bhushan Steel and Power. The petition for launching the insolvency process was filed by SBI. Earlier, the Gujarat High Court had dismissed Essar Steel’s plea against RBI to start insolvency proceedings against it.
“Freedom of speech is a fundamental right and approaching the higher judiciary is open to everyone,” Mundra told reporters on the sidelines of a Canara Bank function.
“If an individual company chooses to use that route, I don’t think that can be prevented, but I am sure that in any judicial system past pronouncements create a kind of future direction and that direction has now become evidently clear,” he said.
Essar Steel had moved the high court seeking the court’s direction to quash and set aside RBI’s direction to the banks to initiate insolvency proceedings against the company through a release dated June 13.
The RBI had last month identified 12 accounts (companies) for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of the total NPAs of banks.
The steel company’s debt has increased to over Rs 42,000 crore. Essar’s contention was that this directive was unfair as it was in an advanced stages of restructuring its loans.
The Gujarat High Court had also rapped the RBI for its statement in which it had said that the NCLT will take up on priority basis the insolvency proceedings against companies having high debt.
Mundra said it was an unintended interpretation (on the part of RBI) and that the Reserve Bank has done the required modification.
“I don’t think RBI had ever intended to direct the judiciary as to what should be their priority,” he said.
“That’s something where the mind is being applied now and as you see in this entire process, RBI’s been doing timely communication, so wait for that,” Mundra said. The RBI has asked banks to make a provision of up to 50% for the accounts for which insolvency proceedings have been initiated and make 100% for those face liquidation.
