RBI, NCLAT and NPA

The Reserve Bank of India requested the National Company Law Appellate Tribunal to modify its order restraining banks from classifying IL&FS and its group companies as NPAs, contending that there was an overlap of power.

What is the ‘order’ in question?

On February 25, NCLAT had said "We make it clear that due to non-payment of dues by the ‘Infrastructure Leasing & Financial Services Limited' or its entities including the ‘Amber Companies', no financial institution will declare the accounts of ‘Infrastructure Leasing & Financial Services Limited' or its entities as ‘NPA' without prior permission of this Appellate Tribunal”.

IL&FS case, NCLAT and RBI:

• The Reserve Bank moved the NCLAT seeking modification of its order that restrained banks from declaring accounts of IL&FS and its group companies as NPAs.
• The NCLAT pressed that the RBI cannot restrict it from prohibiting banks from 'asset classification' and observed that any change in this order would upset the entire resolution process of the IL&FS and 300 group companies, which are sitting on the huge debt amounting to over Rs 90,000 crore.
• The NCLAT had asked the banking sector regulator (RBI) to clarify if its NPA norms and powers come in the way of successful resolution of IL&FS companies.
• National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal(s) (NCLT), with effect from 1st June, 2016.
• NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC),
• NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI)

IBC and NPA:

• The entire resolution process is based on the principles enunciated in the Insolvency and Bankruptcy Code.
• Under the plan, the government has categorised IL&FS group companies into green, amber and red based on their respective financial positions.
• Companies under the green category would be those that continue to meet their payment obligations.
• Amber category would be for those companies that will not be able to meet their obligations but can meet only operational payment obligations to senior secured financial creditors.
• Amber category entities "are permitted to make only payments necessary to maintain and preserve the going concern".
• Companies falling in the red category are the entities which cannot meet their payment obligations towards even senior secured financial creditors.
  
  

  Non-performing assets (NPA) An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time. An amount due under any credit facility is treated as "past due" when it has not been paid within 30 days from the due date. Due to the improvements in the payment and settlement systems, recovery climate, upgradation of technology in the banking system, etc., it was decided to dispense with ‘past due’ concept, with effect from March 31, 2001. Accordingly, as from that date, a Non-performing Asset (NPA) shall be an advance where interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a Term Loan.