The Allahabad High Court (HC) order has not cleared the air for stressed power assets that have insolvency looming over them, leaving the door open for more litigation and a complex maze of likely directions and policy initiatives that the Centre and the Reserve Bank of India (RBI) can take.
While lenders have 15 days from August 27 to file for insolvency under the RBI’s February 12 notification which was challenged in court, the Allahabad HC has asked the government to consider initiation of the consultative process contemplated under Section 7 of the RBI Act, and conclude the same within 15 days from Monday. A high-level committee under Cabinet Secretary P K Sinha will also come up with a report on power sector woes within two months.
Simultaneously, Independent Power Producers Association (IPPA) is at liberty “to apply for urgent interim relief if the need arises, placing the requisite factual details on record”, which could create another spate of legal wrangling.
In a 124-page order, Chief Justice Dilip B Bhosale and Justice Yashwant Varma said the petitioners have failed to establish a case for the grant of interim relief at this stage but the rejection of interim relief was “not intended to preclude the IPPA from applying for urgent interim directions”.
While the power associations are unlikely to appeal against the order, individual companies could be lining up to prevent declaration of insolvency or even sale of assets outside of the insolvency process.
“Equally important is the presence of the lenders before the court so that their views on the subject may also be elicited and known with regard to the viability of any existing restructuring plans or schemes in respect of the petitioners or their members. The larger questions as noticed above and which arise herein may be considered when these writ petitions are posted for hearing next,” said the order, thereby implying more petitions could be on the way.
The first meeting of a high-level empowered committee (HLEC) is on August 31. On the suggestion of assistant solicitor general, representing the government, the court said the RBI should also take part in the committee, but clarified that the banking regulatory will not be bound by “the report/recommendations or the majority view that may come to be forged before the HLEC”. The HLEC has 10 members from different ministries, banking institutions, and the Power Finance Corporation, and the Rural Electrification Corporation.
The HLC will look into issues which the generators have raised, said a senior government official who is part of the panel that was initially recommended by the parliamentary standing committee on power but was notified by the government only after the court direction. The committee will look into issues of coal and transporting of coal to power plants which are facing constraints, lack of power purchase, and how market situation can be improved. “Some of these are likely to be formalised,” said the official.
The committee’s report is, therefore, likely to be more about sectoral issues that are at the centre of power sector woes and these, too, may not change things overnight especially when it comes to financial stress.
Even in the specific case of Prayagraj Power Generation, where JSW Energy, Tata Power, and ICICI Ventures-backed Resurgent Power are in fray, the court was told that completion of formalities would require at least three months. “This proposal shall neither stand shelved nor shall it stand effaced even if proceedings were initiated against this petitioner (Prayagraj) under the Insolvency and Bankruptcy Code (IBC),” said the court order.
The court noted that since all the lenders have already agreed to the proposal in principle, even if one lender was to initiate proceedings under the IBC “so as to short circuit this process, the same would not take away the right of the majority of lenders equivalent to 90 per cent in the committee of creditors to apply for withdrawal from IBC in accordance with Section 12A”.