B&F: Supreme Court Strikes Down RBI's Circular On Resolution Of Stressed Assets

RBI Circular:

The Reserve Bank of India ("RBI") vide Circular No.131 dated February 12, 2018 ("Circular") issued a generic framework and instructions to resolve the stressed assets in the economy. The Circular was issued by the RBI in exercise of its power under Section 35AA of the Banking Regulation Act, 1949 ("Act"), which section was inserted through the Banking Regulation (Amendment) Act, 2017 ("Amendment Act").

The Circular, inter alia, directed banks to resolve debts within specified time limit, failing which compulsory insolvency proceedings was to be initiated by the banks. It basically took away the bank's discretion to not to act on a bad loan, and therefore quickly became a ground of contention between the government, the majority owner of most of these banks, and the RBI.