DHARANI SUGARS AND CHEMICALS LTD. versus UNION OF INDIA & ORS.

DHARANI SUGARS AND CHEMICALS LTD. versus UNION OF INDIA & ORS.

Sections 35AA and 35AB of the Banking Regulation Act, 1949 are not unconstitutional as they confer regulatory powers upon the RBI with sufficient guidance from the Act. The RBI Circular dated 12.02.2018 is ultra vires as it exceeded the powers conferred under Section 35AA, which only permits directions to initiate insolvency resolution in respect of specific defaults by specific debtors with Central Government authorisation. Since the Circular applied generally to all debtors and both banking and non-banking institutions, it is declared void.

Parties
Petitioner: Dharani Sugars and Chemicals Ltd.; Respondent: Union of India & Ors.
Jurisdiction
India
Judgment Date
02 April 2019
Procedural Posture
Transferred Case (civil) No.66 of 2018; Transfer Petition (civil) No.1399 of 2018 / Final Judgment
Outcome
Petitions challenging constitutional validity dismissed; RBI Circular dated 12.02.2018 declared ultra vires and of no effect; all actions taken under the Circular set aside.
Legal Topics
Validity of Banking Regulation (amendment) Act, 2017, Ultra Vires RBI Circular, Resolution of Stressed Assets, Regulatory Powers of RBI, Application of Insolvency and Bankruptcy Code, 2016
Constitutional Law Banking Regulation Insolvency Law Validity of Banking Regulation (amendment) Act, 2017 Ultra Vires RBI Circular Resolution of Stressed Assets Regulatory Powers of RBI Application of Insolvency and Bankruptcy Code, 2016

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Parties

Dharani Sugars and Chemicals Ltd.

Petitioner

Union of India & Ors.

Respondent

Procedural Posture

Transferred Case (civil) No.66 of 2018; Transfer Petition (civil) No.1399 of 2018 / Final Judgment

Legal Issues

  1. 1 Whether sections 35AA and 35AB of the Banking Regulation Act, 1949 as introduced by the Banking Regulation (Amendment) Act, 2017 are unconstitutional for being arbitrary and lacking guidelines.
  2. 2 Whether the RBI Circular dated 12.02.2018 is ultra vires the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934.

Ratio Decidendi

Sections 35AA and 35AB of the Banking Regulation Act, 1949 are not unconstitutional as they confer regulatory powers upon the RBI with sufficient guidance from the Act. The RBI Circular dated 12.02.2018 is ultra vires as it exceeded the powers conferred under Section 35AA, which only permits directions to initiate insolvency resolution in respect of specific defaults by specific debtors with Central Government authorisation. Since the Circular applied generally to all debtors and both banking and non-banking institutions, it is declared void.

Court Disposition

Petitions challenging constitutional validity dismissed; RBI Circular dated 12.02.2018 declared ultra vires and of no effect; all actions taken under the Circular set aside.

Orders

  • Impugned RBI Circular dated 12.02.2018 declared ultra vires and set aside.
  • All proceedings initiated solely under the Circular (including under Section 7 of the Insolvency Code) declared non-est.