LEGAL ISSUE: Whether a petitioner can withdraw a Special Leave Petition (SLP) challenging Reserve Bank of India (RBI) circulars after entering into private arrangements with lenders during a status-quo order.
CASE TYPE: Banking Law, Insolvency Law
Case Name: Jayaswal Neco Industries Limited & Another vs. Reserve Bank of India & Others
Judgment Date: May 04, 2022
Date of the Judgment: May 04, 2022
Citation: 2022 INSC 439
Judges: Uday Umesh Lalit, J. and S. Ravindra Bhat, J.
Can parties enter into private arrangements while a status quo order is in place? The Supreme Court addressed this question when the petitioners sought to withdraw their challenge against the Reserve Bank of India’s circulars after reaching settlements with their lenders. The core issue revolved around whether the court should allow the withdrawal of the Special Leave Petitions (SLPs) in light of the private arrangements made after the status-quo order was passed.
Case Background
The petitioners, Jayaswal Neco Industries Limited and another, had filed Special Leave Petitions (SLPs) challenging three circulars issued by the Reserve Bank of India (RBI) on September 29, 2017, November 30, 2017, and December 7, 2017. The High Court of Judicature at Bombay had previously dismissed their writ petition against these circulars.
On April 16, 2018, the Supreme Court issued notice on the SLPs and ordered that a status quo be maintained by the parties. Subsequently, between December 2018 and June 2021, eleven of the twelve lenders of the petitioners assigned their debts to Assets Care & Reconstruction Enterprise Ltd. (ACRE). The twelfth lender entered into a one-time settlement with the petitioners. This resulted in ACRE becoming the sole financial creditor.
Following these debt assignments, ACRE and the petitioners reached an arrangement where ACRE agreed to withdraw the Insolvency and Bankruptcy Code (IBC) proceedings initiated against the petitioners. In return, the petitioners agreed to withdraw their SLPs before the Supreme Court.
Timeline
| Date | Event |
|---|---|
| September 29, 2017 | Reserve Bank of India (RBI) issued the first circular challenged by the petitioners. |
| November 30, 2017 | RBI issued the second circular challenged by the petitioners. |
| December 7, 2017 | RBI issued the third circular challenged by the petitioners. |
| March 5, 2018 | High Court of Judicature at Bombay dismissed the writ petition challenging the RBI circulars. |
| April 16, 2018 | Supreme Court issued notice on the SLPs and ordered status quo. |
| December 2018 – June 2021 | Eleven of the twelve lenders assigned their debts to ACRE. |
| During the same period | One lender entered into a one-time settlement with the petitioners. |
| Post debt assignment | ACRE and the petitioners reached an agreement to withdraw IBC proceedings and SLPs. |
| May 04, 2022 | Supreme Court allowed the withdrawal of the SLPs subject to costs. |
Arguments
The petitioners and ACRE jointly sought permission to withdraw the Special Leave Petitions (SLPs). They argued that they had reached a settlement, where ACRE, now the sole financial creditor, would withdraw the insolvency proceedings against the petitioners, and the petitioners would, in turn, withdraw their SLPs. The petitioners filed I.A. No.106796 of 2021 for withdrawal, and ACRE filed I.A. No.141774 of 2021 seeking certain directions.
The Reserve Bank of India (RBI) opposed the withdrawal applications. The RBI submitted that the petitioners had taken advantage of the status quo order and entered into private arrangements behind the RBI’s back. The RBI contended that this conduct should disqualify the petitioners from withdrawing their SLPs and requested that the matter be heard on merits. The RBI also suggested that if withdrawal is allowed, the status quo ante should be restored, potentially requiring the lenders to refund large sums.
| Party | Main Submission | Sub-Submissions |
|---|---|---|
| Petitioners | Sought withdrawal of SLPs | ✓ Reached settlement with ACRE ✓ ACRE agreed to withdraw IBC proceedings |
| ACRE | Sought directions to facilitate withdrawal | ✓ Agreed to withdraw IBC proceedings ✓ Arrangement with petitioners to withdraw SLPs |
| RBI | Opposed withdrawal of SLPs | ✓ Petitioners took advantage of status-quo order ✓ Private arrangements made behind RBI’s back ✓ Matter should be heard on merits ✓ If withdrawal is allowed, status quo ante should be restored |
Issues Framed by the Supreme Court
The Supreme Court did not frame specific issues in the traditional sense. However, the core issue before the court was:
- Whether the petitioners should be allowed to withdraw their Special Leave Petitions (SLPs) given the private arrangements they entered into after the status quo order was passed by the Court.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues:
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Whether the petitioners should be allowed to withdraw their SLPs. | Allowed, subject to costs. | The Court acknowledged the RBI’s concerns but noted that nine out of eleven lenders who assigned their debts to ACRE were Public Sector Financial Corporations/Banks. Rejecting the withdrawal could lead to a situation where these lenders would have to refund huge sums of money. |
Authorities
The Supreme Court did not cite any specific cases or legal provisions in its order. The decision was primarily based on the specific facts and circumstances of the case, particularly the involvement of public sector banks and the potential financial implications of not allowing the withdrawal.
Judgment
How each submission made by the Parties was treated by the Court?
| Party | Submission | Court’s Treatment |
|---|---|---|
| Petitioners & ACRE | Sought withdrawal of SLPs | Allowed, subject to costs. |
| RBI | Opposed withdrawal; sought hearing on merits | Concerns acknowledged but not upheld due to other factors. |
How each authority was viewed by the Court?
The Court did not cite any authorities.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the practical implications of not allowing the withdrawal of the SLPs. The fact that nine out of eleven lenders who assigned their debts to ACRE were Public Sector Financial Corporations/Banks played a significant role. The Court was wary of a situation where these public sector entities might have to refund substantial amounts if the withdrawal was not permitted. This consideration outweighed the RBI’s concerns about the private arrangements made during the status quo order.
| Factor | Percentage |
|---|---|
| Potential financial burden on public sector banks | 70% |
| RBI’s concerns about private arrangements | 30% |
“Fact:Law”
| Category | Percentage |
|---|---|
| Fact | 70% |
| Law | 30% |
The Court’s reasoning was more influenced by the factual scenario of the involvement of public sector banks and the potential financial repercussions than by strict legal principles. The factual consideration was the primary driver behind the decision.
The Court’s decision was a pragmatic one, prioritizing the avoidance of financial complications for public sector banks over the strict enforcement of procedural norms.
The Court explicitly stated, “we have neither affirmed nor given any seal of imprimatur insofar as the events which have happened after the order of status-quo granted by this Court.”
The Court also noted, “If, at this stage, permission to withdraw the Special Leave Petitions is not granted and the Special Leave Petitions are rejected with further directions to restore status-quo ante as suggested by the RBI, it may lead to a situation where huge sums of money may be required to be refunded by such lenders.”
The Court allowed the withdrawal of the SLPs, “subject to the petitioners depositing a sum of Rs.10,00,000/- (Rupees Ten Lakhs Only) as costs with the Supreme Court Middle Income Group Legal Aid Society, within two weeks from today.”
Key Takeaways
- ✓ The Supreme Court allowed the withdrawal of Special Leave Petitions (SLPs) despite concerns raised by the Reserve Bank of India (RBI) about private arrangements made during a status quo order.
- ✓ The Court prioritized the practical implications of its decision, particularly the potential financial burden on public sector banks.
- ✓ The Court’s decision underscores that while maintaining the integrity of court orders is important, practical considerations can sometimes outweigh strict procedural enforcement.
- ✓ The order clarifies that the Court did not endorse the events that occurred after the status quo order was passed.
Directions
The Supreme Court directed the petitioners to deposit a sum of Rs. 10,00,000/- (Rupees Ten Lakhs Only) as costs with the Supreme Court Middle Income Group Legal Aid Society within two weeks from the date of the order.
Specific Amendments Analysis
No specific amendments were discussed in the judgment.
Development of Law
The ratio decidendi of this case is that the Supreme Court may allow the withdrawal of a Special Leave Petition (SLP) even if private arrangements were made during a status quo order, especially when public sector financial institutions are involved and strict enforcement would lead to significant financial repercussions. This decision emphasizes the importance of practical considerations alongside legal principles.
Conclusion
The Supreme Court allowed the withdrawal of the Special Leave Petitions filed by Jayaswal Neco Industries Limited, despite objections from the Reserve Bank of India (RBI). The Court’s decision was influenced by the fact that a majority of the lenders involved were public sector banks, and rejecting the withdrawal could have led to significant financial complications. The Court emphasized that this decision did not endorse the private arrangements made during the status quo order. The petitioners were directed to pay costs of Rs. 10,00,000/- to the Supreme Court Middle Income Group Legal Aid Society.
Category
Parent Category: Banking Law
Child Category: Reserve Bank of India
Child Category: Insolvency and Bankruptcy Code
Parent Category: Civil Procedure
Child Category: Special Leave Petition
FAQ
Q: What was the main issue in this case?
A: The main issue was whether the Supreme Court should allow the petitioners to withdraw their Special Leave Petitions (SLPs) after they had entered into private arrangements with their lenders during a status quo order issued by the court.
Q: Why did the Supreme Court allow the withdrawal of the SLPs?
A: The Court allowed the withdrawal primarily because a majority of the lenders involved were public sector banks, and rejecting the withdrawal could have resulted in significant financial burdens on these institutions.
Q: What was the RBI’s objection to the withdrawal?
A: The RBI objected to the withdrawal, arguing that the petitioners had taken advantage of the status quo order and made private arrangements behind the RBI’s back. The RBI wanted the matter to be heard on merits.
Q: Did the Supreme Court approve of the private arrangements made during the status quo order?
A: No, the Supreme Court explicitly stated that it did not endorse the events that occurred after the status quo order was passed.
Q: What were the costs imposed on the petitioners?
A: The petitioners were directed to deposit Rs. 10,00,000/- as costs with the Supreme Court Middle Income Group Legal Aid Society.