InvestorQ : Why has Supreme Court rejected 'February 12' RBI circular?
Aishwarya Nimbalkar made post

Why has Supreme Court rejected 'February 12' RBI circular?

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1 year ago

On 12th February 2018, Reserve Bank of India (RBI) passed a circular to the banks and lenders specifically asking them to consider companies as insolvent even if the default is delayed by one-day. In March 2019, RBI reiterated the February 12, 2018 order so that stressed asset or Non-Performing Assets (NPAs) can be taken care of. In such stringent circular, several companies, mostly power firms could have been declared as insolvent so, they filed asked Supreme Court to intervene in the ordinance dated February 12, 2018.
Today, 02nd April 2019, Supreme court rejected the 'February 12' RBI circular and thus gave a verdict in favor of these companies. Approximately 75 companies, that comprises a total debt of Rs 2.2 lakh crore are now relieved as they now have 180 days to resolve the debt.

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Roshni Hegde answered.
1 year ago

The Supreme Court's (SC's) decision withdrew the Reserve Bank of India’s 'February 12' circular on stressed asset management on 2nd April 2019. This decision will bring relief to several large companies. These companies were already going through their insolvency proceedings.

As per the rating agency ICRA, the record of September 2018 says, there were around 70 borrowers with bad debt worth over Rs 3.8 lakh crore. Due to the provisions of Feb.12, 2018 circular, these companies could have been entitled as insolvent ones, but now the Supreme court has quashed it. The Supreme Court circular gave banks 180 days from the first day of default to resolve the stress in an account or initiate insolvency.

Almost all of the large power firms got relief who was first challenged by the RBI’s circular. Especially debt-laden companies like Jet Airways, Jai Prakash Power Venture.
These companies are likely to get the benefit through the new SC circular; Lalitpur Power Generation Company, KSK Mahanadi Power Company, Jai Prakash Power Venture, Lanco Amarkantak Power, and Jet Airways.