RBI circular to send 100 more firms to NCLT

Highlights

A large number of stressed companies are set to be referred to the National Company Law Tribunal (NCLT) with the Reserve Bank of India (RBI) making it mandatory for banks to have a 100 percent voting for any debt restricting plans. The Supreme Court will hear a case filed by the power producers’ association against the Reserve Bank’s February 12 circular on November 13, adding that any decision by the Apex court will not only impact these stressed power companies but also the ones that are associated with them as the Supreme Court has bunched all the petitions together for a single hearing. Life Insurance Company (LIC), Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) and public sector banks are not giving consent for any debt restructuring programmes which may lead to about 80-100 companies being referred to the NCLT.

Power companies have welcomed the Supreme Court’s stay on RBI circular and said the verdict will prevent 13Gw of stressed power plants from insolvency. It’s not only the power companies which are facing the brunt of RBI move, but many other companies from telecom and allied industries are also facing the bankruptcy action. In many cases, a bank with less than one percent vote at the committee meetings had stopped the debt resolution plans and the rest of the banks have no other option but to follow suit and refer the company to the NCLT.  In turn, it would impact jobs and supply chains of large and small companies. In September this year, the Supreme Court granted a stay on all NCLT cases faced by the power companies and decided to hear all petitions challenging the February 12 circular of the RBI from November 13th. The Supreme Court order came after 34 power producers moved the court requesting it to cancel the RBI’s dictate which has put a question mark over the future of these companies.

SC order has provided a great relief to Power sector stressed assets, this would provide time for Bankers to finalize resolution plan for about 13 GW of projects which are at present in their final stages and High-level empowered committee(HLEC) under the Chairmanship of Cabinet Secretary.

The Supreme Court has recently cleared a plan by three Gujarat based power producers — Adani Power, Tata Power, and Essar Power to re-negotiate their Power Purchase Agreements (PPAs) after lenders including the State Bank of India submitted that these projects have become unviable due to a change in the Indonesian coal export regulations. During the hearing, the Indian lenders, who have filed debt recovery suits under the Insolvency and Bankruptcy Code (IBC) against 977 companies in the past two years, have said the three Gujarat-based loss-making power projects — Coastal Gujarat Power in Mundra, Adani Power Mundra, and Essar Power — should be revived with some efforts by all stakeholders and not be allowed to become insolvent.

Indian lenders’ track record with NCLT companies has not been good so far. As per the initial data, Indian lenders will take a 56 percent haircut on loans worth Rs 2.65 trillion to the 12 companies identified for resolution under the IBC, 2016, by the RBI in June 2017. Considering the offers received till now, lenders would be able to recover only Rs 1.15 trillion from bidders.

Reference Links

  1. RBI circular to send 100 more firms to NCLT; SC to hear cases from Tuesday
  2. RBI’s February 12 circular may send 100 more companies to NCLT, says a report
  3. Power companies hail Supreme Court stay on RBI circular
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