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    Power companies facing insolvency get no interim relief from High Court

    Synopsis

    Banks were trying for a resolution plan for these firms as going to NCLT would mean large haircuts.

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    Banks were trying to come up with a resolution plan for these firms as going to the NCLT would mean large haircuts.
    NEW DELHI: The Allahabad High Court declined to give private power companies any interim relief on the Reserve Bank of India (RBI) circular that tightened bad loan norms on Monday, the deadline for finalising resolution plans for the stressed assets.

    The court suggested the government could use a special dispensation that has never been used before to give directions to the central bank. The high court has mandated insolvency proceedings by lenders against defaulting power projects. Executives said that insolvency proceedings, which kick in as RBI’s 180-day deadline has passed, may lead to steep haircuts for lenders because of the low valuations of stressed projects.

    Bankers said they have 15 days to start insolvency proceedings against defaulters, and that it takes about two months to get a case admitted to the National Company Law Tribunal (NCLT), giving them another window to resolve the case. The circular issued on February 12 said that defaulters have to be admitted to the NCLT within 180 days, which meant a deadline of August 27. The companies had sought a relaxation on this as had the government. The issue will come up before the Supreme Court on Tuesday.

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    AT STAKE, PLANTS WORTH RS 17,000 CRORE
    RBI wants the apex court to transfer to itself all cases on the matter that have been filed in the various high courts. Banks hope to salvage at least seven commissioned power plants worth Rs 17,000 crore for which new promoters have been identified. These projects have received bids that require lenders to take a 50% haircut.

    Close to eight power plants have been admitted to the NCLT while another 15 will need to have the insolvency process initiated against them after the deadline, sources said. Plants of many companies including KSK Energy, Avantha Group, GMR Energy and Jaiprakash Power Ventures are being eyed by power companies and funds. Potential buyers include Adani Power, Vedanta Plc, JSW Energy, Resurgent Power and Edelweiss ARC with average bids at 50% of the project cost. Total power sector bad debt is pegged at Rs 1.2 lakh crore, owed by about 60 companies.

    The high court asked the central government to decide on the matter and take action under Section 7 of the RBI Act within 15 days. This says that the central government can ask the RBI to take action it considers necessary in the public interest after consultation with the governor. The government has never used this dispensation. During court proceedings, the government had recommended an extension of 180 days to complete resolution proceedings.

    RBI had sought direction from the government on stressed assets under the same section. It also said that stress in the power sector had been caused by state-run utilities being favoured at the expense of private ones.

    SINHA COMMITTEE
    The court has also asked the high-level empowered committee that was set up on July 29 under cabinet secretary PK Sinha to decide within two months on resolution in consultation with the RBI. The court has asked the government to include RBI representation in the high-level committee, which was set up to revive stressed thermal projects.

    An executive with a public sector financial institution said that of 11 power projects identified to be resolved through bidding, deals for at least seven had been finalised and the necessary paperwork had started. “The lenders have 15 days to initiate insolvency proceedings against the defaulting projects, while admission to NCLT these days takes two months,” a senior bank executive said.

    “So the lenders still have two-three months to save such projects. Even after admission, in case 90% of the lenders decide, they can withdraw a project from NCLT.” The high court has also ruled that any person or company with an urgent case can independently approach it with all material facts, sources said. The power companies had moved the Allahabad High Court seeking modification in the RBI circular saying it would trigger insolvency proceedings against 30,000 megawatts of assets, causing huge value erosion.

    The companies said that many projects are stressed for reasons beyond their control. These include delays in land acquisition, green clearances, failure of Coal India to supply fuel and the reluctance of state distribution companies to sign power purchase agreements.

    WHAT THE HIGH COURT SAID...
    Delivering the verdict, Chief Justice Dilip B Bhosale said: “We are of the opinion that interim relief, at this stage, need not be granted. IPPA or APP are at liberty to apply for urgent interim relief if need so arises, placing the requisite factual details on record. The Central Government shall consider initiation of the consultative process contemplated under Section 7 of RBI Act, and conclude the same within 15 days from today.

    “The High Level Empowered Committee shall submit its report within two months from the date of its constitution. The Ministry of Power shall invite a senior representative of the RBI, after consultation with the Governor of RBI, as a member of the High Level Empowered Committee forthwith. “This order shall not curtail the rights/powers of a financial creditor under Section 7 of the IBC or even of the RBI in issuing directions in specific case( s) under Section 35AA of BR Act to initiate corporate insolvency resolution process under Chapter II of Part II of IBC, in any given case, including the petitioners or members of the petitioners' Association.”



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    ( Originally published on Aug 27, 2018 )
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