SC nixes RBI circular on bad loans as ultra vires

New Delhi: In a huge relief to the regulated sector, the Supreme Court on Tuesday struck down as ultra vires the controversial Reserve Bank of India (RBI) circular mandating resolution of loans of Rs. 2,000 crore and above even for a single day.

"We have declared RBI circular ultra vires," said Justice Rohinton Fali Nariman pronouncing the judgement on a batch of petitions by the industries -- power, fertiliser and sugar -- challenging February 12, 2018 apex bank circular.

Justice Nariman is accompanied by Justice Vineet Saran on the bench.

The court verdict would have a bearing on Rs 2.2 lakh crore of bad loans.

The RBI circular said that in the pre-Insolvency and Bankruptcy Code (IBC) stage, the moment a commercial entity is in default on a loan of Rs 2,000 crore or more even for a day, the bank would initiate steps for resolving, including restructuring the loan.

The regulated sector companies of fertiliser, power and sugar had contended that their prices are regulated by the government and they don't get paid on time and thus they are not able to pay the banks on schedule and they are not wilful defaulters and can't be treated as such.

They have contended that under IBC the resolution plan gives then 270 days but the RBI circular has reduced it to 180.