LexDHARANI SUGARS AND CHEMICALS LTD. versus UNION OF INDIA & ORS.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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DHARANI SUGARS AND CHEMICALS LTD.
v.
UNION OF INDIA & ORS.
(Transferred Case (Civil) No.66 of 2018)
In
(Transfer Petition (Civil) No.1399 of 2018)
APRIL 02, 2019
[R. F. NARIMAN AND VINEET SARAN, JJ.]
Banking Regulation Act, 1949 – ss.35AA and 35AB – Validity
of – Petitioners contended that the Banking Regulation (Amendment)
Act, 2017, which introduced ss.35AA and 35AB are unconstitutional
on two grounds: (i) that the sections introduced are manifestly
arbitrary; and (ii) that they suffer from absence of guidelines –
Held: The Banking Regulation (Amendment) Act, 2017 brought these
amendments which confer regulatory powers upon the RBI to carry
out its functions under the Banking Regulation Act and are not
different in quality from any of the sections which have already
conferred such power – S.21 makes it clear that the RBI may control
advances made by banking companies in public interest, and in so
doing, may not only lay down policy but may also give directions to
banking companies either generally or in particular – Similarly, u/
s.35A, vast powers are given to issue necessary directions to banking
companies in public interest – Therefore, ss.35AA and 35AB which
give the RBI certain regulatory powers cannot be said to be manifestly
arbitrary – Insofar, guidelines by which the power given to the RBI
is to be exercised are concerned, there are catena of judgments that
such guidance can be obtained not only from the statement of objects
and reasons and preamble to the Act but also from its provisions –
There are other regulatory ss.25, 29, 30 and 31, all give guidance
as to how the RBI is to exercise these powers under the newly added
provisions – Consequently, plea of constitutional validity failed –
Banking Regulation (Amendment) Act, 2017.
Banking Regulation Act, 1949 – s.35A, 35AA and 35AB –
Reserve Bank of India Act, 1934 – s.45L – Reserve Bank of India
issued a circular on 12.02.2018, by which RBI promulgated a revised
[2019] 6 S.C.R. 307
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SUPREME COURT REPORTS
[2019] 6 S.C.R.
framework for resolution of stressed assets – According to RBI, the
said circular attempted to tell banks that insofar as huge debts over
INR 2000 crore are concerned, they will be given a reasonable period
of six months within which to either resolve stress assests or
otherwise, if they cannot do so, would only then have to move under
the insolvency and Bankruptcy Code, 2016 – It was also contended
that the said circular traced its power from sections 21, 35A, 35AA
and 35AB of the Banking Regulation Act and s.45L of the Reserve
Bank of India Act – Petitioner contended that impugned RBI Circular
dated 12.02.2018 was ultra vires the provisions of the Banking
Regulation Act and the RBI Act – Held: Stressed assets can be
resolved either through the Insolvency Code or otherwise – When
resolution through the Code is to be effected, the specific power
granted by s.35AA can alone be availed by the RBI – Prior to the
enactment of s.35AA, it may have been possible to say that when it
comes to the RBI issuing directions to a banking company to initiate
insolvency resolution process under the Insolvency Code, it could
have been issued such directions u/ss. 21 and 35A – But after s.35AA,
it may do so only within the four corners of s.35AA – And power u/
s.35AB r/w. 35A is to be exercised separately from the power
conferred by s.35AA – Now, the directions that can be issued u/s.
35AA can only be in respect of specific defaults by specific debtors
– This was also the understanding of the Central Government when
it issued a notification dated 05.05.2017, which authorised the RBI
to issue such directions only in respect of “a default” under the
insolvency Code – Thus, any directions which are in respect of
debtors generally, would be ultra vires s.35AA – In the instant case,
impugned circular dated 12.02.2018 stated that as one of its sources,
the power contained in s.45L of the RBI Act insofar as non-banking
financial institution are concerned – However, there is nothing to
show that the provisions of s.45L(3) were satisfied – Further,
impugned Circular dated 12.02.2018 applied to banking and non-
banking institutions alike, therefore, they are inseparable insofar
as the application of the impugned circular is concerned – It is very
difficult to segregate the non-banking financial institutions from
banks so as to make the circular applicable to them even if it is ultra
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