The Reserve Bank of India came up with a circular last year dated February 12 and today the apex court has rendered it illegal. The circular named Resolution of Stressed Assets - Revised Framework" forced a lot of financially stressed companies to declare themselves as bankrupt.
February 12 circular -Explained
As per the RBI circular, any of the loan account over Rs. 2,000 crore which has not been resolved within 180 days of default has to be referred to IBC.
While the apex court's decision comes as a big relief to a number of companies operating in power, shipping and other sectors, it may also lead to a change in the basics of India's bankruptcy regime.
Also it imposed a new ruling as per which in case the company misses repayment schedule by even a day has to be deemed as a defaulter. The rule is referred as a one-day default rule.
Furthermore, the directives given in the circular took away the discretion of the bank to not act in a tough manner for the bad loans. These companies had to put up the case for either resolution or file for insolvency.
The Supreme Court decision comes as a big relief for power, sugar, fertilizers who faced challenges after the RBI circular.
And with it the earlier powers of banking entities have been restored i.e. henceforth they will be able to take most appropriate decision on stressed assets.