constitutional validity – Reserve Bank of India [“RBI”] Circular issued on 12.02.2018, by which the RBI promulgated a revised framework for resolution of stressed assets= There is nothing to show that the provisions of Section 45L(3) have been satisfied in issuing the impugned circular. The impugned circular nowhere says that the RBI has had due regard to the conditions in which and the objects for which such institutions have been established, their statutory responsibilities, and the effect the business of such financial institutions is likely to have on trends in the money and capital markets. Further, it is clear that the impugned circular applies to banking and non-banking institutions alike, as banking and non-banking institutions are often in a joint lenders’ forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugned circular is concerned. It is very difficult to segregate the non-banking financial institutions from banks so as to make the circular applicable to them even if it is ultra vires insofar as banks are concerned. For these reasons also, the impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est.

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL/APPELLATE JURISDICTION
TRANSFERRED CASE (CIVIL) NO.66 OF 2018
IN
TRANSFER PETITION (CIVIL) NO.1399 OF 2018
DHARANI SUGARS AND CHEMICALS LTD. … PETITIONER
VERSUS
UNION OF INDIA & ORS. … RESPONDENTS
WITH
WRIT PETITION (CIVIL) NO.339 OF 2018
WRIT PETITION (CIVIL) NO.802 OF 2018
WRIT PETITION (CIVIL) NO.1086 OF 2018
WRIT PETITION (CIVIL) NO.1110 OF 2018
WRIT PETITION (CIVIL) NO.1124 OF 2018
WRIT PETITION (CIVIL) NO.1142 OF 2018
WRIT PETITION (CIVIL) NO.1138 OF 2018
WRIT PETITION (CIVIL) NO.1156 OF 2018
WRIT PETITION (CIVIL) NO.1153 OF 2018
WRIT PETITION (CIVIL) NO.1166 OF 2018
WRIT PETITION (CIVIL) NO.1206 OF 2018
2
WRIT PETITION (CIVIL) NO.1212 OF 2018
WRIT PETITION (CIVIL) NO.1236 OF 2018
WRIT PETITION (CIVIL) NO.1296 OF 2018
SLP(C) NO. 31421 OF 2018
WRIT PETITION (CIVIL) NO.1316 OF 2018
WRIT PETITION (CIVIL) NO.1308 OF 2018
WRIT PETITION (CIVIL) NO.1359 OF 2018
TRANSFERRED CASE (CIVIL) NO.65 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1404 OF 2018
WRIT PETITION (CIVIL) NO.1363 OF 2018
WRIT PETITION (CIVIL) NO.1364 OF 2018
WRIT PETITION (CIVIL) NO.1374 OF 2018
TRANSFERRED CASE (CIVIL) NO.71 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1283 OF 2018
TRANSFERRED CASE (CIVIL) NO.73 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1285 OF 2018
TRANSFERRED CASE (CIVIL) NO.72 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1284 OF 2018
TRANSFERRED CASE (CIVIL) NO.75 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1287 OF 2018
3
TRANSFERRED CASE (CIVIL) NO.76 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1288 OF 2018
TRANSFERRED CASE (CIVIL) NO.74 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1286 OF 2018
TRANSFERRED CASE (CIVIL) NO.70 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1403 OF 2018
TRANSFERRED CASE (CIVIL) NO.69 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1402 OF 2018
TRANSFERRED CASE (CIVIL) NO.68 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1401 OF 2018
TRANSFERRED CASE (CIVIL) NO.67 OF 2018
IN
TRANSFER PETITION (CIVIL) NO. 1400 OF 2018
WRIT PETITION (CIVIL) NO.1383 OF 2018
WRIT PETITION (CIVIL) NO.1402 OF 2018
WRIT PETITION (CIVIL) NO.1400 OF 2018
WRIT PETITION (CIVIL) NO.1391 OF 2018
WRIT PETITION (CIVIL) NO.1411 OF 2018
WRIT PETITION (CIVIL) NO.1410 OF 2018
WRIT PETITION (CIVIL) NO.1438 OF 2018
WRIT PETITION (CIVIL) NO.22 OF 2019
WRIT PETITION (CIVIL) NO.1502 OF 2018
4
WRIT PETITION (CIVIL) NO.8 OF 2019
WRIT PETITION (CIVIL) NO.9 OF 2019
WRIT PETITION (CIVIL) NO.14 OF 2019
WRIT PETITION (CIVIL) NO.36 OF 2019
WRIT PETITION (CIVIL) NO.50 OF 2019
WRIT PETITION (CIVIL) NO.81 OF 2019
WRIT PETITION (CIVIL) NO.117 OF 2019
WRIT PETITION (CIVIL) NO.246 OF 2019
WRIT PETITION (CIVIL) NO.278 OF 2019
JUDGMENT
R.F. NARIMAN, J.

  1. The present batch of petitions and transferred cases raise
    questions as to the constitutional validity of Sections 35AA and 35AB
    of the Banking Regulation Act, 1949 [“Banking Regulation Act”]
    introduced by way of amendment w.e.f. 04.05.2017. The real bone of
    contention is a Reserve Bank of India [“RBI”] Circular issued on
    12.02.2018, by which the RBI promulgated a revised framework for
    resolution of stressed assets. The important clauses of the aforesaid
    circular are set out hereinbelow:
    5
    “Resolution of Stressed Assets – Revised
    Framework
  2. The Reserve Bank of India has issued various
    instructions aimed at resolution of stressed assets in the
    economy, including introduction of certain specific
    schemes at different points of time. In view of the
    enactment of the Insolvency and Bankruptcy Code, 2016
    (IBC), it has been decided to substitute the existing
    guidelines with a harmonised and simplified generic
    framework for resolution of stressed assets. The details
    of the revised framework are elaborated in the following
    paragraphs.
    I. Revised Framework
    A. Early identification and reporting of stress
  3. Lenders1 shall identify incipient stress in loan
    accounts, immediately on default2
    , by classifying
    stressed assets as special mention accounts (SMA) as
    per the following categories:
    SMA
    Subcategories
    Basis for classification –
    Principal or interest payment or
    any other amount wholly or
    partly overdue between
    SMA-0 1-30 days
    SMA-1 31-60 days
    SMA-2 61-90 days
  4. As provided in terms of the circular
    DBS.OSMOS.No.14703/33.01.001/2013-14 dated May
    22, 2014 and subsequent amendments thereto, lenders
    shall report credit information, including classification of
    an account as SMA to Central Repository of Information
    on Large Credits (CRILC) on all borrower entities having

1 Lenders under these guidelines would generally include all scheduled commercial banks
(excluding RRBs) and All India Financial Institutions, unless specified otherwise.
2
‘Default’ means non-payment of debt when whole or any part or instalment of the amount of
debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the
case may be. For revolving facilities like cash credit, default would also mean, without prejudice to
the above, the outstanding balance remaining continuously in excess of the sanctioned limit or
drawing power, whichever is lower, for more than 30 days.
6
aggregate exposure3 of ₹ 50 million and above with
them. The CRILC-Main Report will now be required to be
submitted on a monthly basis effective April 1, 2018. In
addition, the lenders shall report to CRILC, all borrower
entities in default (with aggregate exposure of ₹ 50
million and above), on a weekly basis, at the close of
business on every Friday, or the preceding working day
if Friday happens to be a holiday. The first such weekly
report shall be submitted for the week ending February
23, 2018.
B. Implementation of Resolution Plan

  1. All lenders must put in place Board-approved policies
    for resolution of stressed assets under this framework,
    including the timelines for resolution. As soon as there is
    a default in the borrower entity’s account with any lender,
    all lenders − singly or jointly − shall initiate steps to cure
    the default. The resolution plan (RP) may involve any
    actions / plans / reorganisation including, but not limited
    to, regularisation of the account by payment of all over
    dues by the borrower entity, sale of the exposures to
    other entities / investors, change in ownership, or
    restructuring4
    . The RP shall be clearly documented by all
    the lenders (even if there is no change in any terms and
    conditions).
    C. Implementation Conditions for RP
  2. A RP in respect of borrower entities to whom the
    lenders continue to have credit exposure, shall be
    deemed to be ‘implemented’ only if the following
    conditions are met:
    a. the borrower entity is no longer in default
    with any of the lenders;

3 Aggregate exposure under the guidelines would include all fund based and non-fund based
exposure with the lenders.
4 Restructuring is an act in which a lender, for economic or legal reasons relating to the
borrower’s financial difficulty (An illustrative non-exhaustive list of indicators of financial difficulty
are given in the Appendix to Annex-I), grants concessions to the borrower. Restructuring would
normally involve modification of terms of the advances / securities, which may include, among
others, alteration of repayment period / repayable amount / the amount of instalments / rate of
interest; roll over of credit facilities; sanction of additional credit facility; enhancement of existing
credit limits; and, compromise settlements where time for payment of settlement amount exceeds
three months.
7
b. if the resolution involves restructuring; then
i. all related documentation, including
execution of necessary agreements
between lenders and borrower /
creation of security charge / perfection
of securities are completed by all
lenders; and
ii. the new capital structure and/or
changes in the terms of conditions of
the existing loans get duly reflected in
the books of all the lenders and the
borrower.

  1. Additionally, RPs involving restructuring / change in
    ownership in respect of ‘large’ accounts (i.e., accounts
    where the aggregate exposure of lenders is ₹ 1 billion
    and above), shall require independent credit evaluation
    (ICE) of the residual debt5 by credit rating agencies
    (CRAs) specifically authorised by the Reserve Bank for
    this purpose. While accounts with aggregate exposure of
    ₹ 5 billion and above shall require two such ICEs, others
    shall require one ICE. Only such RPs which receive a
    credit opinion of RP46 or better for the residual debt from
    one or two CRAs, as the case may be, shall be
    considered for implementation. Further, ICEs shall be
    subject to the following:
    a. The CRAs shall be directly engaged by
    the lenders and the payment of fee for such
    assignments shall be made by the lenders.
    b. If lenders obtain ICE from more than the
    required number of CRAs, all such ICE
    opinions shall be RP4 or better for the RP to be
    considered for implementation.
    xxx xxx xxx
    D. Timelines for Large Accounts to be Referred
    under IBC

5 The residual debt of the borrower entity, in this context, means the aggregate debt (fund based
as well as non-fund based) envisaged to be held by all the lenders as per the proposed RP.
6 Annex – 2 provides list of RP symbols that can be provided by CRAs as ICE and their
meanings.
8

  1. In respect of accounts with aggregate exposure of the
    lenders at ₹ 20 billion and above, on or after March 1,
    2018 (‘reference date’), including accounts where
    resolution may have been initiated under any of the
    existing schemes as well as accounts classified as
    restructured standard assets which are currently in
    respective specified periods (as per the previous
    guidelines), RP shall be implemented as per the
    following timelines:
    i. If in default as on the reference date, then
    180 days from the reference date.
    ii. If in default after the reference date, then 180
    days from the date of first such default.
  2. If a RP in respect of such large accounts is not
    implemented as per the timelines specified in paragraph
    8, lenders shall file insolvency application, singly or
    jointly, under the Insolvency and Bankruptcy Code 2016
    (IBC)7 within 15 days from the expiry of the said
    timeline8
    .
    xxx xxx xxx
  3. For other accounts with aggregate exposure of the
    lenders below ₹ 20 billion and, at or above ₹ 1 billion, the
    Reserve Bank intends to announce, over a two-year
    period, reference dates for implementing the RP to
    ensure calibrated, time-bound resolution of all such
    accounts in default.
    xxx xxx xxx
    V. Withdrawal of extant instructions
  4. The extant instructions on resolution of stressed
    assets such as Framework for Revitalising Distressed
    Assets, Corporate Debt Restructuring Scheme, Flexible
    Structuring of Existing Long Term Project Loans,
    Strategic Debt Restructuring Scheme (SDR), Change in
    Ownership outside SDR, and Scheme for Sustainable
    Structuring of Stressed Assets (S4A) stand withdrawn

7 Applicable in respect of entities notified under IBC.
8 The prescribed timelines are the upper limits. Lenders are free to file insolvency petitions under
the IBC against borrowers even before the expiry of the timelines, or even without attempting a
RP outside IBC.
9
with immediate effect. Accordingly, the Joint Lenders’
Forum (JLF) as an institutional mechanism for resolution
of stressed accounts also stands discontinued. All
accounts, including such accounts where any of the
schemes have been invoked but not yet implemented,
shall be governed by the revised framework.

  1. The list of circulars/directions/guidelines subsumed
    in this circular and thereby stand repealed from the date
    of this circular is given in Annex – 3.
  2. The above guidelines are issued in exercise of
    powers conferred under Section 35A, 35AA (read with
    S.O.1435 (E) dated May 5, 2017 issued by the
    Government of India) and 35AB of the Banking
    Regulation Act, 1949; and, Section 45L of the Reserve
    Bank of India Act, 1934.”
  3. It will be noticed that the salient features of this circular are that
    restructuring in respect of borrower entities de hors the Insolvency
    and Bankruptcy Code, 2016 [“Insolvency Code”] can only occur if
    the resolution plan that involves restructuring is agreed to by all
    lenders, i.e., 100 per cent concurrence. Secondly, what has been
    chosen to be the subject matter of the circular is debts with an
    aggregate exposure of INR 2000 crore and over on or after
    01.03.2018. With respect to such debts, if default persists for 180
    days from 01.03.2018, or if the date of first default is after
    01.03.2018, then 180 days calculated with effect from that date,
    lenders shall file applications singly or jointly under the Insolvency
    Code within 15 days from the expiry of the aforesaid 180 days. In
    10
    short, unless a restructuring process in respect of debts with an
    aggregate exposure of over INR 2000 crore is fully implemented on
    or before 195 days from the reference date or date of first default, the
    lenders will have to file applications as financial creditors under the
    Insolvency Code. It will be noticed that the sources of power for
    issuance of the aforesaid circular have been stated to be Section 35A
    of the Banking Regulation Act read with the Central Government’s
    circular dated 05.05.2017, Sections 35AA and 35AB of the said Act,
    and Section 45L of the Reserve Bank of India Act, 1934 [“RBI Act”]. It
    may be stated here that by an order dated 11.09.2018, this Court
    allowed various transfer petitions and made orders in Writ Petition
    No. 1086 of 2018, by which it was ordered that status quo as of today
    shall be maintained in the meantime. As a result, insofar as the
    petitions and transferred cases in this Court are concerned, the
    circular has, in effect, been stayed on and from 11.09.2018.
  4. The charge on behalf of the petitioners was led by Dr. Abhishek
    Manu Singhvi, learned Senior Advocate. Dr. Singhvi appears on
    behalf of the Association of Power Producers, representing the power
    sector in general. According to the learned Senior Advocate, the
    Electricity Act, 2003 [“Electricity Act”] was enacted as a complete
    11
    code to regulate the private sector. According to him, unlike sectors
    such as the steel and cement sector, the power sector is fully
    regulated and tariffs that are fixed can only be after they are so
    determined / adopted by Electricity Regulatory Commissions under
    Section 62 or Section 63 of the Electricity Act. The power sector,
    therefore, is a player in a restricted market – power can only be
    purchased by distribution licensees or trading licensees under
    Section 12 of the Electricity Act, which can only be done with the prior
    approval of State Electricity Regulatory Commissions. Even
    transmission of power requires prior approval of transmission
    licensees, and therefore, substitutability of buyers is impossible since
    the means to supply power are not readily available. To buttress his
    submissions, Dr. Singhvi relied heavily upon the reports of the
    Parliamentary Standing Committees which were looking into the
    problems of the power sector from time to time. Thus, the 37th
    Parliamentary Standing Committee Report on Stressed / Nonperforming Assets in the Electricity Sector dated 07.03.2018 recorded
    that in the private sector, there were 34 stressed projects amounting
    to 40,130 MWs out of 85,550.30 MWs which have a debt exposure of
    INR 1,74,468 crore. Out of these, non-performing assets [“NPAs”]
    amounting to 34,044 crores are primarily on account of Government
    12
    policy changes, failure to fulfil commitments by the Government,
    delayed regulatory response and non-payment of dues by DISCOMs.
    This Report, therefore, recommended the setting up of a task force to
    look into the NPA problem in the power sector.
  5. Dr. Singhvi then went into non-availability of fuel and took us
    through the New Coal Distribution Policy of 18.10.2007, by which
    Thermal Power Projects were assured supply of 100 per cent coal.
    This changed drastically as a result of Government of India
    restrictions in 2013, which restricted supply of coal to only those
    Independent Power Producers (IPPs) with long term Power Purchase
    Agreements (PPAs) and otherwise limited supply to 65 per cent of
    coal requirement. Another setback occurred in August/September,
    2014 as coal mines allocated to the power sector were cancelled by
    the Supreme Court by a judgment in Manohar Lal Sharma v.
    Principal Secretary and Ors., (2014) 9 SCC 516. Remedial
    measures such as the SHAKTI Scheme were introduced only after
    three years of the Supreme Court judgment on 22.05.2017. Even this
    Scheme limited supply of coal to 75 per cent of the assured coal
    supply as against what was assured in 2007. All this was commented
    on by the 37th and 40th Parliamentary Standing Committee Reports.
    13
    In so far as the gas-based plants are concerned, the 42nd
    Parliamentary Standing Committee Report referred to the same tale
    of woe as in coal based power plants – gas, in which the power
    sector was originally given priority, was later placed in 2013-14 under
    a no-cut category, leading to drastic reduction in supply of gas to the
    power sector. Dr. Singhvi also referred to various reports showing
    that as on October, 2018, DISCOMs only paid INR 8,710 crore
    against dues of approximately INR 39,500 crore to generating
    companies. This situation gets exacerbated by delay in adjudication
    and consequent payment by DISCOMs. He then referred to
    preferential treatment that is given to power companies in the public
    sector as opposed to power companies in the private sector, and
    argued that against total stressed assets of 66,000 MWs in the
    private sector, stressed assets in the public sector amount to nil.
    Lack of PPAs being entered into was another cause of concern. Out
    of the total stressed capacity of 40,130 MWs identified in the 37th
    Parliamentary Standing Committee Report, PPAs have been
    executed only for the capacity of 17,708 MWs, as a result of which
    long term commitments qua fuel supply etc. are lacking. According to
    him, the impact of the RBI Circular was directly focused upon by the
    40th Parliamentary Standing Committee Report. The 40th
    14
    Parliamentary Standing Committee has analysed the suitability and
    impact of the impugned RBI Circular after consultation with the RBI,
    major banks, and financial institutions as well as the power sector
    associations. Key observations in the Report are:
    “(a) As per Department of Financial Services, Ministry of
    Finance, “one size fits all” approach of the RBI is
    erroneous.
    (b) Lenders like the Rural Electrification Corporation and
    the State Bank of India have submitted that
    implementing an optimal solution is impossible within the
    180-day time period specified by the impugned RBI
    Circular. The State Bank of India has stated that 12
    months’ time is required to implement a resolution plan.
    As per the prescribed timelines, every stressed project of
    the power sector will land in the NCLT.
    (c) Arriving at 100 per cent consensus of lenders for
    approval and implementation of the resolution plan is
    difficult, especially when there are projects with multiple
    lenders.
    (d) The Power Finance Corporation pointed out that
    even in case of a successfully running project like the
    Chhattisgarh project, they could only recover INR 2,500
    crore out of a total of debt of INR 8,300 crore, i.e., 70 per
    cent haircut. Thus, there is significant value erosion.
    (e) The State Bank of India highlighted the need for
    synchronisation between the RBI’s guidelines and
    resolution of the systemic issues of the electricity sector.”
    After due examination and enquiry, the 40th Parliamentary Standing
    Committee Report of August 2018 has made the following
    recommendations:
    15
    “(a) Appropriate, relevant, and sector-specific measures
    should be explored to address the issues faced by power
    sector. Instead of adopting sector-agnostic approach for
    stress-resolution, the RBI should look at sector-friendly
    measures.
    (b) Revised framework introduced by the RBI has been
    done ignoring the prevailing realities.
    (c) Repayment of 20 per cent of the outstanding principal
    debt as per the RBI Circular is impracticable for power
    sector entities, and accordingly, the circular
    disincentivizes restructuring with the existing promoters.
    (d) Forced sale before the NCLT will cause a big
    sacrifice of public money without any benefit to the
    economy or the power sector.
    (e) The power sector should be protected since it is
    going through a transition phase from a low-demandlow-supply situation to a moderately-high-demand
    situation, which is temporary in nature.”
  6. Dr. Singhvi then referred to a challenge that was made to the
    RBI Circular in the Allahabad High Court in Independent Power
    Producers Association of India v. Union of India and Ors., Writ –
    C No. 18170 of 2018. He referred to a copy of the order dated
    31.05.2018, by which the Allahabad High Court ordered:
    “We request the Secretary, Ministry of Finance, Union of
    India, to hold a meeting in the month of June, 2018 of
    respondents 2 to 5 through their Secretaries and a
    representative of the petitioners’ association to consider
    their grievance and see whether any solution to the
    problem is possible, in the light of observations made by
    the Thirty-Seventh Report of Standing Committee on
    Energy presented to Lok Sabha on 7.3.2018 with regard
    to stressed/non-performing assets in electricity sector.
    Though, we could not go through the report, our
    16
    attention was specifically drawn to some observations in
    Part-II of the report, which reads thus:
    “The Committee are of the considered view that
    providing finances, though vital, to the project is
    only one of the several factors essential for the
    commissioning of the project. As of now,
    commissioned plants worth of thousands of
    Mws are under severe financial stress and are
    currently under SMA-1/2 stage or on the brink
    of becoming NPA. This is due to fuel shortage,
    sub-optimal loading, untied capacities, absence
    of FSA and lack of PPA, etc. These projects
    were commissioned on the basis of national
    need/ demand of electricity, availability of all
    other essentials required in this regard.
    However, due to unforeseen circumstances,
    these plants are suffering from cash flows,
    credit rating, interest servicing etc. Hence,
    simply applying the RBI guidelines
    mechanically by the banks, financial
    institutions, joint lender forums will push these
    plants further into trouble without any hope of
    recovery.”
    It is needless to mention that the petitioners’
    representatives shall supply a copy of this order and of
    the writ petition with annexures to all the respondents
    within one week from today. We only observe that action
    may be avoided on the basis of the impugned circular
    dated 12.2.2018 issued by respondent no.2-Reserve
    Bank of India addressed to all Scheduled Commercial
    Banks and All India Financial Institutions, against
    members of the petitioners association, subject to
    condition that the member(s) is/are not wilful defaulter(s)
    till the meeting is conducted by the Secretary, Ministry of
    Finance, Union of India. We also observe that the
    Secretary, Ministry of Finance shall communicate the
    date and time of the meeting to all concerned, including
    the President of the petitioners’ association, well in
    advance.”
    17
  7. Dr. Singhvi then referred to the detailed order passed by the
    Allahabad High Court in the aforesaid case on 27.08.2018, in which
    he referred to the stand taken by the Union of India as follows:
    “24.1. …… As observed earlier, the Central Government
    is in favour of granting them some more time so as to
    save the power sector in the larger interest. Mr. Tushar
    Mehta, learned ASG, submitted that it is desirable, while
    considering the “sector (power) specific issues” that a
    timeline prescribed under the circular be made effective
    after 180 days from 27.08.2018 and subsequent steps
    be taken by the parties based upon the reports of the
    High Level Empowered Committee presided over by the
    Cabinet Secretary. He submitted, the time can be
    extended at this stage and not once process under IBC
    is set in motion.”
    He also referred to the fact that a High Level Empowered Committee
    is to be set up as follows:
    “42. In this backdrop, I am inclined to direct the High
    Level Empowered Committee to submit its report within
    two months from the date of its constitution. The Ministry
    of Power shall invite a senior officer of the RBI, after
    consultation with the Governor of RBI, as a member of
    the High Level Empowered Committee forthwith. In the
    meantime, I observe that the Central Government should
    consider whether it would like to issue directions under
    Section 7 of the RBI Act on the basis of the report and
    other material, including reports of the Standing
    Committee within 15 days from today in the light of the
    observations made in this order. In view thereof, it is not
    desirable to grant any interim relief at this stage. This
    shall not preclude the petitioner-Associations or its
    members from applying for urgent relief, if the
    circumstances so demand, placing the request and
    factual details in respect of such an action. This order
    shall not curtail the rights/powers of the financial
    18
    creditors under Section 7 of IBC or even of the RBI in
    issuing directions in specific case(s) under Section 35AA
    of BR Act to initiate corporate insolvency resolution
    process under Chapter II of Part II of IBC, in any given
    case, including the petitioners or members of the
    petitioners’ Association.”
  8. Dr. Singhvi then referred to the Report dated 12.11.2018 of the
    High Level Committee so constituted. This Report made various
    recommendations. It stated:
    “1. Linkage coal may be allowed to be used against short
    term PPAs and power be sold through Discovery of
    Efficient Energy Price (DEEP) portal following a
    transparent bidding process.
  9. A nodal agency may be designated which may invite
    bids for procurement of bulk power for medium term for 3
    to 5 years in appropriate tranches, against pre-declared
    linkage by Coal India Limited (CIL).
  10. NTPC can act as an aggregator of power, i.e., procure
    power through transparent competitive bidding process
    from such stressed power plants and offer that power to
    the DISCOMs against PPAs of NTPC till such time as
    NTPC’s own concerned plants/units are commissioned.
  11. Ministry of Coal may earmark for power, at least 60
    per cent of the e-auction coal, and this should be in
    addition to the regular coal requirement of the power
    sector.
  12. If there is a shortfall in the supply of coal and it is
    attributable to the Ministry of Coal or Railways; such
    shortfall need not lapse and be carried over to the
    subsequent months up to a maximum of three months.
  13. Old and high heat rate plants not complying with new
    environment norms may be considered for retirement in
    a phased and timebound manner at the same time
    avoiding any demand/supply mismatch.
    19
  14. Public Financial Institutions (PFIs) providing the Bill
    Discounting facility may also be covered by the Tripartite Agreement (TPA) i.e. in case of default by the
    DISCOM, the RBI may recover the dues from the
    account of States and make payment to the PFIs.
  15. PPAs, Fuel Supply Agreements (FSA) and LTOA for
    transmission of power, EC/FC clearances, and all other
    approvals including water, be kept alive and not
    cancelled by the respective agencies even if the project
    is referred to NCLT or is acquired by any other entity. All
    of these may be linked to the plant and not the Promoter.
  16. In order to revive gas based power plants, Ministry of
    Power and Ministry of Petroleum & Natural Gas may
    jointly devise a scheme in line with the earlier e-bid
    RLNG Scheme (supported by PSDF).”
    Dr. Singhvi, therefore, argued that despite the fact that a
    representative of the RBI attended meetings of the Parliamentary
    Standing Committee, the RBI Circular was issued in complete
    disregard of the recommendations of such Reports, both before and
    after the impugned circular. According to him, therefore, to apply a
    180-day limit to all sectors of the economy without going into the
    special problems faced by each sector would treat unequals equally
    and would be arbitrary and discriminatory, and therefore, violative of
    Article 14 of the Constitution of India. Also, picking up at random all
    defaults amounting to INR 2000 crore and above, as well as the fact
    that even a lender whose stake is only 1 per cent can stall a
    20
    resolution process de hors the Insolvency Code make the circular
    manifestly arbitrary and violative of Article 14 on this score as well.
  17. Apart from the aforesaid submissions, Dr. Singhvi referred in
    great detail to the relevant sections of the Banking Regulation Act
    and the RBI Act, and argued that the impugned circular was ultra
    vires the provisions of those Acts. According to him, Section 35A and
    Section 35AB of the Banking Regulation Act cannot possibly be the
    source of power for the impugned circular. Section 35A was
    introduced by an Amendment Act of 1956 and cannot, therefore, be
    used to empower the RBI to relegate companies to insolvency under
    the Insolvency Code as it did not exist at the time, or to give
    directions for resolution of stressed assets. He strongly referred to
    and relied upon Indian Banks’ Association v. Devkala
    Consultancy Service, (2004) 11 SCC 1 [“Indian Banks’
    Association”] for the proposition that the RBI’s functions under
    Section 35A are confined to the boundaries of the RBI Act and the
    Banking Regulation Act and not to other statutes, such as the
    Insolvency Code. He also argued that Sections 35AA and 35AB are
    part of one composite scheme. Section 35AA alone refers to, and can
    alone be the source of power for directing banking and non-banking
    21
    companies to file applications under the Insolvency Code. Section
    35AB clearly refers to resolution of stressed assets in a manner
    which is de hors the Insolvency Code. He then referred to the circular
    of the Central Government dated 05.05.2017 which empowered the
    RBI to issue directions qua individual defaults that are committed.
    This being so, a general circular applying to all defaults of loans
    above INR 2000 crore, without having reference to the facts of each
    individual case would, therefore, be ultra vires and bad in law. For
    this purpose, he strongly relied upon the Press Note that introduced
    Sections 35AA and 35AB as well as the Statement of Objects and
    Reasons introducing the said Sections by the Amending Act of 2017.
    He also argued that in any case, Sections 35AA and 35AB, being
    manifestly arbitrary provisions, are violative of Article 14 of the
    Constitution of India. Further, they are also arbitrary on the ground of
    excessive delegation of power.
  18. Shri Mukul Rohatgi, Shri Sajan Poovayya, Shri K.V.
    Viswanathan, Shri Neeraj Kishan Kaul, Shri Navaniti Prasad Singh,
    Shri P.S. Narsimha, Shri Arvind P. Datar, and Shri Gopal Jain,
    learned Senior Advocates, and Shri Pulkit Deora, Smt. Purti Marwaha
    Gupta, and Shri E.R. Kumar, learned Advocates, have also supported
    22
    the submissions of Dr. Singhvi. These counsel have appeared in
    cases involving many other sectors, such as telecom, steel,
    infrastructure, sports infrastructure, sugar, fertiliser, shipyard, etc.
    Each of them has highlighted the difficulties faced as a result of
    Government policies and other reasons for financial stress in all these
    sectors, which have nothing to do with the efficiency of management
    of companies operating in these sectors. All of them have adopted
    the arguments of Dr. Singhvi in stating that, without looking into each
    individual sector’s problems and attempting to solve them, the RBI
    circular applies down the board to good and bad alike, and, despite
    the fact that some corporate debtors are on the brink of resolution,
    the chopper of 180 days comes down on them and they are driven
    into the Insolvency Code. The Government has recognised that, for
    example, in the sports infrastructure sector, much larger gestation
    periods are necessary in which capital infrastructure investments take
    place and which consequently require long periods for resolution.
    They have also argued with various nuances of their own as to how
    the RBI circular is both arbitrary and ultra vires the Banking
    Regulation Act and the RBI Act.
    23
  19. Shri Rakesh Dwivedi, learned Senior Advocate appearing on
    behalf of the RBI, has taken us through various provisions of the RBI
    Act and Banking Regulation Act and has impressed upon us the fact
    that the regulatory regime laid down in these Acts must be construed
    broadly, being in public interest, in the interest of banking policy, and
    above all, in the interest of depositors. The RBI Act and the
    Insolvency Code are intricately related to the operation of the credit
    system of the country, and must therefore, be given an expansive
    interpretation. According to the learned Senior Advocate, the RBI
    Circular is only an attempt to tell banks that insofar as huge debts
    over INR 2000 crore are concerned, they will be given a reasonable
    period of six months within which to either resolve stress assets or
    otherwise, if they cannot do so, would only then have to move under
    the Insolvency Code. According to him, clause 4 of the RBI Circular
    makes it clear that greater flexibility is given in this period of six
    months for banking and non-banking financial institutions to resolve
    stressed assets even de hors earlier restrictive circulars that have
    been done away with by the circular dated 12.02.2018 so that an
    effort be made to resolve stressed assets within a reasonable period,
    after which it becomes incumbent on such institutions to move the
    Insolvency Code. According to him, the circular is not manifestly
    24
    arbitrary. On the contrary, it is in public interest and in the interest of
    the national economy to see that evergreening of debts does not
    carry on indefinitely. Therefore, these huge amounts that are due and
    owing should come back into the economy for further productive use.
    Either they can so come back within the six months’ grace period
    granted by the circular or through the route of the Insolvency Code.
    He also made it clear that the Parliamentary Standing Committee
    Reports are for the purpose of Parliament, which must then act upon
    them. None of the Reports that have been referred to have been
    acted upon by Parliament, and therefore, that cannot take the matter
    much further. Also, it is important to notice that though the executive,
    i.e., the Government could also have acted in terms of these Reports,
    it has chosen not to do so. For this purpose, he relied upon Section 7
    of the RBI Act, under which the Central Government may, from time
    to time, give such directions to the RBI that it may consider necessary
    in public interest, after consultation with the Governor of the RBI. The
    sheet anchor of the petitioners’ case, therefore, disappears as all
    these Parliamentary Standing Committee Reports do not take the
    petitioners anywhere, not having been acted upon either by the
    Parliament or by the Central Government. This is for the very good
    reason that ultimately, it is in public interest to either resolve stressed
    25
    assets within a certain timeframe, or if incapable of such resolution,
    the route of the Insolvency Code should then be followed. So far as
    the vires of Sections 35AA and 35AB are concerned, Shri Dwivedi
    relied upon our recent judgment in Swiss Ribbons Pvt. Ltd. and
    Anr. v. Union of India and Ors., 2019 (2) SCALE 5 [“Swiss
    Ribbons”], saying that great leeway must be given to Parliament to
    deal with the problems which affect the national economy as a whole.
    There is adequate guiding principle and there is no manifest
    arbitrariness in any of the aforesaid provisions. Further, there is no
    question of excessive delegation of power either, as guidance can be
    obtained from the Preamble of the Banking Regulation Act together
    with its provisions. Insofar as the RBI Circular is concerned, he
    argued that it is traceable to four sources of power, namely, Sections
    21, 35A, 35AA and 35AB of the Banking Regulation Act. Insofar as
    non-banking financial companies are concerned, it is traceable to
    Section 45L of the RBI Act. According to the learned Senior
    Advocate, a general circular of this kind can certainly be issued in
    public interest and in the interest of the national economy. Any
    restrictive reading of any of these provisions will only do harm to the
    economy of the country as a whole. Broadly read, therefore, the RBI
    Circular cannot be said to be ultra vires.
    26
  20. Shri Tushar Mehta, learned Solicitor General for India, confined
    his submissions to the constitutional validity of Sections 35AA and
    35AB of the Banking Regulation Act, and the validity of the Central
    Government circular dated 05.05.2017. According to the learned
    Solicitor General, Sections 35AA and 35AB are regulatory provisions
    made in public interest that cannot possibly be said to be manifestly
    arbitrary in any way. He relied heavily upon the judgment of Swiss
    Ribbons (supra). Further, the aforesaid Sections cannot be said to
    be unguided provisions as the RBI gets sufficient guidance from the
    Preamble as well as other provisions of the Banking Regulation Act.
    He further submitted that the authorisation of the Central Government
    with respect to Section 35AA has to be general in nature, after which,
    the RBI must exercise such power with due deliberation and with
    sector-specific care as the expert financial regulator and central bank
    of the country. He submitted that ideally, there ought to be a sector
    wise contingency analysis by the RBI before exercising power
    provided by the Central Government to it under Section 35AA. In any
    case, so far as the power sector is concerned, he was of the view that
    the RBI ought to have treated it differently from all other sectors in
    view of the steps that the Central Government is taking in order to
    bring back the power sector on its feet.
    27
  21. At this juncture, it is important to note the genesis of the
    impugned circular. By a press release dated 13.06.2017, the RBI
    identified certain accounts for reference by banks under the
    Insolvency Code. This press release reads as follows:
    “RBI identifies Accounts for Reference
    by Banks under the Insolvency and Bankruptcy
    Code (IBC)
    The Reserve Bank of India had issued a Press Release
    on May 22, 2017 outlining the steps taken and those on
    the anvil pursuant to the promulgation of the Banking
    Regulation (Amendment) Ordinance, 2017. The Press
    Release had mentioned inter alia that the RBI would be
    constituting a Committee comprised majorly of its
    independent Board Members to advise it in regard to the
    cases that may be considered for reference for
    resolution under the Insolvency and Bankruptcy Code,
    2016 (IBC).
  22. An Internal Advisory Committee (IAC) was accordingly
    constituted and it held its first meeting on June 12, 2017.
    The IAC, in the meeting, agreed to focus on large
    stressed accounts at this stage and accordingly took up
    for consideration the accounts which were classified
    partly or wholly as non-performing from amongst the top
    500 exposures in the banking system.
  23. The IAC also arrived at an objective, non-discretionary
    criterion for referring accounts for resolution under IBC.
    In particular, the IAC recommended for IBC reference all
    accounts with fund and non-fund based outstanding
    amount greater than ₹ 5000 crore, with 60% or more
    classified as non-performing by banks as of March 31,
  24. The IAC noted that under the recommended
    criterion, 12 accounts totaling about 25 per cent of the
    current gross NPAs of the banking system would qualify
    for immediate reference under IBC.
    28
  25. As regards the other non-performing accounts which
    do not qualify under the above criteria, the IAC
    recommended that banks should finalise a resolution
    plan within six months. In cases where a viable
    resolution plan is not agreed upon within six months,
    banks should be required to file for insolvency
    proceedings under the IBC.
  26. The Reserve Bank, based on the recommendations of
    the IAC, will accordingly be issuing directions to banks to
    file for insolvency proceedings under the IBC in respect
    of the identified accounts. Such cases will be accorded
    priority by the National Company Law Tribunal (NCLT).
  27. The details of the resolution framework in regard to
    the other non-performing accounts will be released in the
    coming days.”
  28. At this stage, as a first step, the Internal Advisory Committee
    [“IAC”] decided to consider the stressed assets within the top 500
    exposures of the banking system as on 31.03.2017. This set of 500
    accounts was arrived at as per the statement generated from the
    Central Repository of Information on Large Credits [“CRILC”]
    database. Of the said top 500 exposures, it was noted that 71
    accounts had been partly or wholly classified as NPAs while the other
    429 were not classified as NPA by any bank. For the purpose of this
    first list, the following criteria were applied:
    a. Accounts where the funded plus non-funded
    outstanding was more than INR 5000 crore;
    29
    b. Accounts where more than 60 per cent of the
    total outstanding by value was NPA as on March
    31, 2016.
    Consequently, 12 accounts which met the above criteria were
    referred for resolution under the Insolvency Code vide RBI’s direction
    dated 15.06.2017. It is pertinent to note that the accounts in the First
    List constituted around 25 per cent of the NPAs in the system and the
    cumulative fund-based and non-fund-based outstanding therein
    amounted to INR 197,769 crore.
  29. The IAC subsequently met again and decided, on 25.08.2017,
    that out of the 59 remaining NPA accounts of the top 500 exposures,
    accounts which are materially NPA (i.e., where 60 per cent of the
    total outstanding has become NPA by 30.06.2017) may be given time
    till 13.12.2017 for resolution. If the banks fail to finalise and
    implement a viable resolution plan by the said date, banks will be
    required to file applications under Insolvency Code before
    31.12.2017. The IAC noted that applying this criterion will cover 29
    NPA accounts, with total outstanding of INR 135,846 crore and total
    fund-based NPAs of INR 111,848 crore as on 30.06.2017. It is
    pertinent to note that on 28.08.2017, the RBI issued a letter directing
    30
    banks to attempt resolution of the accounts in this Second List by
    13.12.2017. As regards the residual accounts, out of the initially
    identified 71 NPA accounts, the IAC recommended that such
    accounts may be addressed through a steady-state framework for
    resolution of stressed assets in a time-bound manner and failing such
    resolution, the accounts be referred to for resolution under the
    Insolvency Code. Accordingly, the RBI formulated and issued the
    revised framework vide its circular dated 12.02.2018.
  30. Meanwhile, the Ministry of Finance issued a notification dated
    05.05.2017 under Section 35AA as follows:
    “MINISTRY OF FINANCE
    (Department of Financial Services)
    ORDER
    New Delhi, the 5th May, 2017
    S.O. 1435(E).―In exercise of the powers conferred by
    Section 35AA of the Banking Regulation Act, 1949 (10 of
    1949), the Central Government hereby authorises the
    Reserve Bank of India to issue such directions to any
    banking company or banking companies which may be
    considered necessary to initiate insolvency resolution
    process in respect of a default, under the provisions of
    the Insolvency and Bankruptcy Code, 2016.”
    This happened to be on the very next day on which the Banking
    Regulation (Amendment) Ordinance, 2017 introduced Sections 35AA
    and 35AB as amendments to the Banking Regulation Act. A Press
    31
    Note of the Ministry of Finance of 05.05.2017 explains the genesis of
    the Ordinance thus:
    “Press Information Bureau
    Government of India
    Ministry of Finance
    05-May-2017
    The promulgation of Banking Regulation (Amendment)
    Ordinance, 2017 will lead to effective resolution of
    stressed assets, particularly in consortium or multiple
    banking arrangements.
    The Ordinance enables the Union Government to
    authorise the Reserve Bank of India (RBI) to direct
    banking companies to resolve specific stressed assets.
    The promulgation of the Banking Regulation
    (Amendment) Ordinance, 2017 inserting two new
    Sections (viz. 35AA and 35AB) after Section 35A of the
    Banking Regulation Act, 1949 enables the Union
    Government to authorise the Reserve Bank of India
    (RBI) to direct banking companies to resolve specific
    stressed assets by initiating insolvency resolution
    process, where required. The RBI has also been
    empowered to issue other directions for resolution, and
    appoint or approve for appointment, authorities or
    committees to advise banking companies for stressed
    asset resolution.
    This action of the Union Government will have a direct
    impact on effective resolution of stressed assets,
    particularly in consortium or multiple banking
    arrangements, as the RBI will be empowered to
    intervene in specific cases of resolution of nonperforming assets, to bring them to a definite conclusion.
    The Government is committed to expeditious resolution
    of stressed assets in the banking system. The recent
    enactment of Insolvency and Bankruptcy Code (IBC),
    2016 has opened up new possibilities for time bound
    resolution of stressed assets. The SARFAESI and Debt
    Recovery Acts have been amended to facilitate
    recoveries. A comprehensive approach is being adopted
    32
    for effective implementation of various schemes for
    timely resolution of stressed assets.”
    (emphasis supplied)
    The Banking Regulation (Amendment) Ordinance, 2017 was then
    enacted as follows:
    “MINISTRY OF LAW AND JUSTICE
    4
    th May, 2017
    An Ordinance further to amend the Banking Regulation
    Act, 1949.
    WHEREAS the stressed assets in the banking system
    have reached unacceptably high levels and urgent
    measures are required for their resolution;
    AND WHEREAS the Insolvency and Bankruptcy Coe,
    2016 has been enacted to consolidate and amend the
    laws relating to reorganisation and insolvency resolution
    of corporate persons, partnership firms and individuals in
    a time bound manner for maximisation of value of assets
    to promote entrepreneurship, availability of credit and
    balance the interest of all the stakeholders;
    AND WHEREAS the provisions of Insolvency and
    Bankruptcy Code, 2016 can be effectively used for the
    resolution of stressed assets by empowering the banking
    regulator to issue directions in specific cases;
    AND WHEREAS Parliament is not in session and the
    President is satisfied that circumstances exist which
    render it necessary for him to take immediate action;
    NOW, THEREFORE, in exercise of the powers
    conferred by clause (1) of article 123 of the Constitution,
    the President is pleased to promulgate the following
    Ordinance:
  31. (1) This Ordinance may be called the Banking
    Regulation (Amendment) Ordinance, 2017.
    (2) It shall come into force at once.
    33
  32. In the Banking Regulation Act, 1949, after section
    35A, the following sections shall be inserted, namely:
    ‘35AA. The Central Government may by
    order authorise the Reserve Bank to issue
    directions to any banking company or banking
    companies to initiate insolvency resolution
    process in respect of a default, under the
    provisions of the Insolvency and Bankruptcy
    Code, 2016.
    Explanation. – For the purposes of this
    section, “default” has the same meaning
    assigned to it in clause (12) of section 3 of the
    Insolvency and Bankruptcy Code, 2016.
    35AB. (1) Without prejudice to the provisions
    of section 35A, the Reserve Bank may, from
    time to time, issue directions to the banking
    companies for resolution of stressed assets.
    (2) The Reserve Bank may specify one or
    more authorities or committees with such
    members as the Reserve Bank may appoint or
    approve for appointment to advise banking
    companies on resolution of stressed assets.”
    (emphasis supplied)
    This Ordinance was replaced by the Banking Regulation
    (Amendment) Bill, 2017 dated 14.07.2017. The Statement of Objects
    and Reasons for the aforesaid Bill reads as follows:
    “THE BANKING REGULATION
    (AMENDMENT) BILL, 2017
    xxx xxx xxx
    STATEMENT OF OBJECTS AND REASONS
    Stressed assets in the banking system, or nonperforming assets have reached unacceptably high
    levels and hence, urgent measures are required for their
    speedy resolution to improve the financial health of
    34
    banking companies for proper economic growth of the
    country. Therefore, it was considered necessary to make
    provisions in the Banking Regulation Act, 1949 for
    authorising the Reserve Bank of India to issue directions
    to any banking company or banking companies to
    effectively use the provisions of the Insolvency and
    Bankruptcy Code, 2016 for timely resolution of stressed
    assets.
  33. It was accordingly decided to make amendments to
    the Banking Regulation Act, 1949. Since Parliament was
    not in session and immediate action was required to be
    taken, the Banking Regulation (Amendment) Ordinance,
    2017 was promulgated by the President on the 4th May,
    2017.
  34. The Banking Regulation (Amendment) Bill, 2017
    which seeks to replace the Banking Regulation
    (Amendment) Ordinance, 2017, provides for the
    following, namely:—
    (a) to confer power upon the Central
    Government for authorising the Reserve Bank
    to issue directions to any banking company or
    banking companies to initiate insolvency
    resolution process in respect of a default, under
    the provisions of the Insolvency and Bankruptcy
    Code, 2016;
    (b) to confer power upon the Reserve Bank to
    issue directions to banking companies for
    resolution of stressed assets and also allow the
    Reserve Bank to specify one or more
    authorities or committees to advise banking
    companies on resolution of
    stressed assets; and
    (c) to amend section 51 of the Act so as to
    make therein the reference of proposed new
    sections 35AA and 35AB.
  35. The Bill seeks to replace the said Ordinance.
    xxx xxx xxx
    14th July, 2017.”
    (emphasis supplied)
    35
    Sections 35AA and 35AB were then legislatively introduced as
    follows:
    “THE BANKING REGULATION
    (AMENDMENT) ACT, 2017
    [25th August, 2017]
    xxx xxx xxx
  36. In the Banking Regulation Act, 1949 (hereinafter
    referred to as the principal Act), after section 35A, the
    following sections shall be inserted, namely:—
    ‘35AA. The Central Government may, by order,
    authorise the Reserve Bank to issue directions to any
    banking company or banking companies to initiate
    insolvency resolution process in respect of a default,
    under the provisions of the Insolvency and Bankruptcy
    Code, 2016.
    Explanation.—For the purposes of this section,
    “default” has the same meaning assigned to it in clause
    (12) of section 3 of the Insolvency and Bankruptcy Code,
    2016.
    35AB. (1) Without prejudice to the provisions of
    section 35A, the Reserve Bank may, from time to time,
    issue directions to any banking company or banking
    companies for resolution of stressed assets.
    (2) The Reserve Bank may specify one or more
    authorities or committees with such members as the
    Reserve Bank may appoint or approve for appointment
    to advise any banking company or banking companies
    on resolution of stressed assets’.
    xxx xxx xxx”
    CONSTITUTIONAL VALIDITY
  37. The petitioners have argued that the aforesaid Ordinance and
    Amendment Act are unconstitutional on two grounds; (i) that the
    Sections introduced are manifestly arbitrary; and (ii) that they suffer
    36
    from absence of guidelines. Insofar as the first challenge is
    concerned, this Court has, in a recent judgment in Swiss Ribbons
    (supra), made it clear that economic legislation is to be viewed with
    great latitude. After referring to the Lochner era and its aftermath in
    paragraph 7 of the aforesaid judgment, this Court referred to various
    judgments of this Court in paragraph 8, and concluded as follows:
    “85. The Insolvency Code is a legislation which deals
    with economic matters and, in the larger sense, deals
    with the economy of the country as a whole. Earlier
    experiments, as we have seen, in terms of legislations
    having failed, ‘trial’ having led to repeated ‘errors’,
    ultimately led to the enactment of the Code. The
    experiment contained in the Code, judged by the
    generality of its provisions and not by so-called crudities
    and inequities that have been pointed out by the
    petitioners, passes constitutional muster. To stay
    experimentation in things economic is a grave
    responsibility, and denial of the right to experiment is
    fraught with serious consequences to the nation. We
    have also seen that the working of the Code is being
    monitored by the Central Government by Expert
    Committees that have been set up in this behalf.
    Amendments have been made in the short period in
    which the Code has operated, both to the Code itself as
    well as to subordinate legislation made under it. This
    process is an ongoing process which involves all
    stakeholders, including the petitioners.”
    It is in this background that legislation affecting the economy is to be
    viewed. This Court, in Shayara Bano v. Union of India, (2017) 9
    SCC 1 has made it clear that Article 14 may be infracted by
    37
    legislation on the ground of such legislation being manifestly arbitrary.
    This Court has said in this behalf:
    “101. It will be noticed that a Constitution Bench of this
    Court in Indian Express Newspapers (Bombay) (P) Ltd.
    v. Union of India [Indian Express Newspapers (Bombay)
    (P) Ltd. v. Union of India, (1985) 1 SCC 641 : 1985 SCC
    (Tax) 121] stated that it was settled law that subordinate
    legislation can be challenged on any of the grounds
    available for challenge against plenary legislation. This
    being the case, there is no rational distinction between
    the two types of legislation when it comes to this ground
    of challenge under Article 14. The test of manifest
    arbitrariness, therefore, as laid down in the aforesaid
    judgments would apply to invalidate legislation as well as
    subordinate legislation under Article 14. Manifest
    arbitrariness, therefore, must be something done by the
    legislature capriciously, irrationally and/or without
    adequate determining principle. Also, when something is
    done which is excessive and disproportionate, such
    legislation would be manifestly arbitrary. We are,
    therefore, of the view that arbitrariness in the sense of
    manifest arbitrariness as pointed out by us above would
    apply to negate legislation as well under Article 14.”
    Short of throwing the mantra of manifest arbitrariness at us, none of
    the petitioners have been able to point out as to how either of these
    provisions is manifestly arbitrary. They are not excessive in any way
    nor do they suffer from want of any guiding principle. As a matter of
    fact, these amendments are in the nature of amendments which
    confer regulatory powers upon the RBI to carry out its functions under
    the Banking Regulation Act, and are not different in quality from any
    of the Sections which have already conferred such power. Thus,
    38
    Section 21 makes it clear that the RBI may control advances made by
    banking companies in public interest, and in so doing, may not only
    lay down policy but may also give directions to banking companies
    either generally or in particular. Similarly, under Section 35A, vast
    powers are given to issue necessary directions to banking companies
    in public interest, in the interest of banking policy, to prevent the
    affairs of any banking company being conducted in a manner
    detrimental to the interest of the depositors or in a manner prejudicial
    to the interest of the banking company, or to secure the proper
    management of any banking company. It is clear, therefore, that
    these provisions which give the RBI certain regulatory powers cannot
    be said to be manifestly arbitrary.
  38. When it comes to lack of any guidelines by which the power
    given to the RBI is to be exercised, it is clear from a catena of
    judgments that such guidance can be obtained not only from the
    Statement of Objects and Reasons and the Preamble to the Act, but
    also from its provisions. Thus, in Harishankar Bagla v. State of
    M.P., (1955) 1 SCR 380, this Court held:
    “9. The next contention of Mr. Umrigar that Section 3 of
    the Essential Supplies (Temporary Powers) Act, 1946,
    amounts to delegation of legislative power outside the
    39
    permissible limits is again without any merit. It was
    settled by the majority judgment in the Delhi Laws Act
    case [1951 SCR 747] that essential powers of legislature
    cannot be delegated. In other words, the legislature
    cannot delegate its function of laying down legislative
    policy in respect of a measure and its formulation as a
    rule of conduct. The legislature must declare the policy
    of the law and the legal principles which are to control
    any given cases and must provide a standard to guide
    the officials or the body in power to execute the law. The
    essential legislative function consists in the
    determination or choice of the legislative policy and of
    formally enacting that policy into a binding rule of
    conduct. In the present case the legislature has laid
    down such a principle and that principle is the
    maintenance or increase in supply of essential
    commodities and of securing equitable distribution and
    availability at fair prices. The principle is clear and offers
    sufficient guidance to the Central Government in
    exercising its powers under Section 3. Delegation of the
    kind mentioned in Section 3 was upheld before the
    Constitution in a number of decisions of their Lordships
    of the Privy Council, vide Russell v. Queen [7 AC 829],
    Hodge v. Queen [9 AC 117] and Shannon v. Lower
    Mainland Dairy Products Board [1938 AC 708] and since
    the coming into force of the Constitution delegation of
    this character has been upheld in a number of decisions
    of this Court on principles enunciated by the majority in
    the Delhi Laws Act case [1951 SCR 747]. As already
    pointed out, the preamble and the body of the sections
    sufficiently formulate the legislative policy and the ambit
    and character of the Act is such that the details of that
    policy can only be worked out by delegating them to a
    subordinate authority within the framework of that policy.
    Mr. Umrigar could not very seriously press the question
    of the invalidity of Section 3 of the Act and it is
    unnecessary therefore to consider this question in
    greater detail.”
    40
    Similarly, in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The
    Assistant Commissioner of Sales Tax and Ors., this Court
    observed:
    “13. It may be stated at the outset that the growth of the
    legislative powers of the Executive is a significant
    development of the twentieth century. The theory of
    laissez faire has been given a go-by and large and
    comprehensive powers are being assumed by the State
    with a view to improve social and economic well-being of
    the people. Most of the modern socio-economic
    legislations passed by the Legislature lay down the
    guiding principles and the legislative policy. The
    Legislatures because of limitation imposed upon by the
    time factor hardly go into matters of detail. Provision is,
    therefore, made for delegated legislation to obtain
    flexibility, elasticity, expedition and opportunity for
    experimentation. The practice of empowering the
    Executive to make subordinate legislation within a
    prescribed sphere has evolved out of practical necessity
    and pragmatic needs of a modern welfare State. At the
    same time it has to be borne in mind that our
    Constitution-makers have entrusted the power of
    legislation to the representatives of the people, so that
    the said power may be exercised not only in the name of
    the people but also by the people speaking through their
    representatives. The role against excessive delegation of
    legislative authority flows from and is a necessary
    postulate of the sovereignty of the people. The rule
    contemplates that it is not permissible to substitute in the
    matter of legislative policy the views of individual officers
    or other authorities, however competent they may be, for
    that of the popular will as expressed by the
    representatives of the people. As observed on p. 224 of
    Vol. I in Cooley’s Constitutional Limitations 8
    th Edn.:
    “One of the settled maxims in constitutional law
    is, that the power conferred upon the
    Legislature to make laws cannot be delegated
    by that department to any other body or
    41
    authority. Where the sovereign power of the
    State has located the authority, there it must
    remain; and by the constitutional agency alone
    the laws must be made until the Constitution
    itself is changed. The power to whose
    judgment, wisdom, and patriotism this high
    prerogative has been entrusted cannot relieve
    itself of the responsibility by choosing other
    agencies upon which the power shall be
    devolved, nor can it substitute the judgment,
    wisdom, and patriotism of any other body for
    those to which alone the people have seen fit to
    confide this sovereign trust.”
    xxx xxx xxx
    “15. The Constitution, as observed by this Court in the
    case of Devi Das Gopal Krishnan v. State of Punjab
    [AIR 1967 SC 1895 : (1967) 3 SCJ 557 : (1967) 20 STC
    430] confers a power and imposes a duty on the
    Legislature to make laws. The essential legislative
    function is the determination of the legislative policy and
    its formulation as a rule of conduct. Obviously it cannot
    abdicate its functions in favour of another. But in view of
    the multifarious activities of a welfare State, it cannot
    presumably work out all the details to suit the varying
    aspects of a complex situation. It must necessarily
    delegate the working out of details to the Executive or
    any other agency. But there is danger inherent in such a
    process of delegation. An over-burdened Legislature or
    one controlled by a powerful Executive may unduly
    overstep the limits of delegation. It may not lay down any
    policy at all; it may declare its policy in vague and
    general terms; it may not set down any standard for the
    guidance of the Executive; it may confer an arbitrary
    power on the Executive to change or modify the policy
    laid down by it without reserving for itself any control
    over subordinate legislation. This self-effacement of
    legislative power in favour of another agency either in
    whole or in part is beyond the permissible limits of
    delegation. It is for a court to hold on a fair, generous
    and liberal construction of an impugned statute whether
    the Legislature exceeded such limits.”
    42
    xxx xxx xxx
    “17. The matter came up for the first time before this
    Court In re The Delhi Laws Act, 1912. [AIR 1951 SC
    332 : 1951 SCR 747 : 1951 SCR 527] Although each
    one of the learned Judges who heard that case wrote a
    separate judgment, the view which emerged from the
    different judgments was that it could not be said that an
    unlimited right of delegation was inherent in the
    legislative power itself. This was not warranted by the
    provisions of the Constitution, which vested the power of
    legislation either in Parliament or State Legislatures. The
    legitimacy of delegation depended upon its being vested
    as an ancillary measure which the Legislature
    considered to be necessary for the purpose of exercising
    its legislative powers effectively and completely. The
    Legislature must retain in its own hands the essential
    legislative function. Exactly what constituted “essential
    legislative function” was difficult to define in general
    terms, but this much was clear that the essential
    legislative function must at least consist of the
    determination of the legislative policy and its formulation
    as a binding rule of conduct. Thus where the law passed
    by the legislature declares the legislative policy and lays
    down the standard which is enacted into a rule of law, it
    can leave the task of subordinate legislation like the
    making of rules, regulations or by-laws which by its very
    nature is ancillary to the statute to subordinate bodies.
    The subordinate authority must do so within the
    framework of the law which makes the delegation, and
    such subordinate legislation has to be consistent with the
    law under which it is made and cannot go beyond the
    limits of the policy and standard laid down in the law. As
    long as the legislative policy is enunciated with sufficient
    clearness or a standard is laid down, the courts should
    not interfere with the discretion that undoubtedly rests
    with the Legislature itself in determining the extent of
    delegation necessary in a particular case [see
    observations of Wanchoo, C.J., in Municipal Corporation
    of Delhi v. Birla Mills.].
  39. In Harishankar Bagla v. State of Madhya Pradesh
    [AIR 1954 SC 465 : (1955) 1 SCR 380 : 1954 Cri LJ
    43
    1322] this Court dealt with the validity of clause 3 of the
    Cotton Textile (Control of Movement) Order, 1948
    promulgated by the Central Government under Section 3
    of the Essential Supplies (Temporary Powers) Act, 1946.
    While upholding the validity of the impugned clause, this
    Court observed that the Legislature must declare the
    policy of the law and the legal principles which are to
    control any given cases and must provide a standard to
    guide the officials or the body in power to execute the
    law, and where the Legislature has laid down such a
    principle in the Act and that principle is the maintenance
    or increase in supply of essential commodities and of
    securing equitable distribution and availability at given
    prices, the exercise of the power was valid.”
    The Statement of Objects and Reasons of the Banking Regulation
    Act, relevant for our purpose, is as follows:
    “STATEMENT OF OBJECTS AND REASONS
    The provisions of law relating to banking companies
    at present form a subsidiary portion of the general law
    applicable to companies and are contained in Part XA of
    the Indian Companies Act, 1913. These provisions,
    which were first introduced in 1936, and which have
    undergone two subsequent modifications, have proved
    inadequate and difficult to administer. Moreover while
    the primary objective of Companies Law is to safeguard
    the interests of the stock-holder, that of banking
    legislation should be the protection of the interests of the
    depositor. It has therefore been felt for some time that
    separate legislation was necessary for the regulation of
    banking in India. This need has become the more
    insistent on account of the considerable development
    that has taken place in recent years in banking,
    especially the rapid growth of banking resources and of
    the number of banks and branches. Regard must also be
    had to the fact that the banking system is likely in the
    post-war period to be more vulnerable by reason of the
    great expansion, both quantitatively and relatively, that
    has taken place in demand deposits, as compared with
    44
    time deposits, during the war years. The enactment of a
    separate comprehensive measure has in consequence
    now become imperative.”
    (emphasis supplied)
    In particular, the main features of the Bill are as follows:
    “(i) A comprehensive definition of ‘banking’ so as to bring
    within the scope of the legislation all institutions which
    receive deposits, repayable on demand or otherwise, for
    lending or investment:
    xxx xxx xxx
    (x) Empowering the Central Government to take action
    against banks conducting their affairs in a manner
    detrimental to the interests of the depositors;
    (xi) Provision for bringing the Reserve Bank of India into
    closer touch with banking companies;
    xxx xxx xxx
    (xiv) Widening the powers of the Reserve Bank of India
    so as to enable it to come to the aid of banking
    companies in times of emergency;
    xxx xxx xxx”
    Sections 14A, 17, 18, and 20 impose various restrictions on a
    banking company. Thus, it is prohibited from having a floating charge
    on assets; it has to maintain a reserve fund, and a cash reserve; and
    it cannot grant loans and advances on the security of its own shares,
    or on behalf of its directors, or any firm in which its directors are
    interested etc. A banking company is obligated to hold a license that
    is issued by the RBI, by which the RBI can impose such conditions as
    it thinks fit under Section 22 of the Act. Section 22(3), in particular,
    gives guidance as to how the banking company will run its business.
    45
    These and other regulatory sections such as Sections 25, 29, 30, and
    31, all give guidance as to how the RBI is to exercise these powers
    under the newly added provisions. We, therefore, agree with Shri
    Dwivedi that there was no dearth of guidance for the RBI to exercise
    the powers delegated to it by these provisions. Consequently, the
    plea of constitutional validity fails.
    ULTRA VIRES
  40. Shri Dwivedi referred to and relied upon Sections 21, 35A,
    35AA, and 35AB in order to sustain the validity of the impugned
    circular. Dr. Singhvi has argued that Section 35A cannot possibly be
    relied upon for the reason that it is an old provision, introduced in
  41. Whether or not to invoke the Insolvency Code was certainly not
    in Parliament’s contemplation when it enacted Section 35A, and for
    this reason, Section 35A cannot possibly be looked at as a source of
    power authorising the RBI to issue the impugned circular.
  42. Dr. Singhvi’s argument raises an interesting question as to the
    “ongoing” interpretation of a statute. Generally, statutes are
    recognised as Acts of Parliament that should be deemed to be
    “always speaking”. Thus, in Senior Electric Inspector v.
    Laxminarayan Chopra, (1962) 3 SCR 146, this Court held that the
    46
    expression “telegraph line” mentioned in the Indian Telegraph Act,
    1885, is comprehensive enough to take in any wire used for the
    purpose of an apparatus for post and telegraph, and wireless
    stations, even though such wires and wireless stations were not in
    the contemplation of Parliament when the 1885 Act was enacted. The
    legal position was laid down thus:
    “…… The maxim contemporanea exposition as laid
    down by Coke was applied to construing ancient
    statutes, but not to interpreting Acts which are
    comparatively modern. There is a good reason for this
    change in the mode of interpretation. The fundamental
    rule of construction is the same whether the Court is
    asked to construe a provision of an ancient statute or
    that of a modern one, namely, what is the expressed
    intention of the Legislature. It is perhaps difficult to
    attribute to a legislative body functioning in a static
    society that its intention was couched in terms of
    considerable breadth so as to take within its sweep the
    future developments comprehended by the phraseology
    used. It is more reasonable to confine its intention only to
    the circumstances obtaining at the time the law was
    made. But in a modern progressive society it would be
    unreasonable to confine the intention of a Legislature to
    the meaning attributable to the word used at the time the
    law was made, for a modern Legislature making laws to
    govern a society which is fast moving must be presumed
    to be aware of an enlarged meaning the same concept
    might attract with the march of time and with the
    revolutionary changes brought about in social, economic,
    political and scientific and other fields of human activity.
    Indeed, unless a contrary intention appears, an
    interpretation should be given to the words used to take
    in new facts and situations, if the words are capable of
    comprehending them. We cannot, therefore, agree with
    the learned Judges of the High Court that the maxim
    47
    contemporanea expositio could be invoked in construing
    the word “telegraph line” in the Act.
    For the said reasons, we hold that the expression
    “telegraph line” is sufficiently comprehensive to take in
    the wires used for the purpose of the apparatus of the
    Post and Telegraph Wireless Station.”
    (at pp. 156-157)
    (emphasis supplied)
  43. Guidance on whether a statute can apply to new situations not
    in contemplation of Parliament when the statute was enacted was
    felicitously set out by Lord Wilberforce in his dissenting judgment in
    Royal College of Nursing of the United Kingdom v. Department
    of Health and Social Security, [1981] 1 All ER 545 [HL] as follows:
    “In interpreting an Act of Parliament it is proper, and
    indeed necessary, to have regard to the state of affairs
    existing, and known by Parliament to be existing, at the
    time. It is a fair presumption that Parliament’s policy or
    intention is directed to that state of affairs. Leaving aside
    cases of omission by inadvertence, this being not such a
    case, when a new state of affairs, or a fresh set of facts
    bearing on policy, comes into existence, the courts have
    to consider whether they fall within the Parliamentary
    intention. They may be held to do so, if they fall within
    the same genus of facts as those to which the expressed
    policy has been formulated. They may also be held to do
    so if there can be detected a clear purpose in the
    legislation which can only be fulfilled if the extension is
    made. How liberally these principles may be applied
    must depend upon the nature of the enactment, and the
    strictness or otherwise of the words in which it has been
    expressed. The courts should be less willing to extend
    expressed meanings if it is clear that the Act in question
    was designed to be restrictive or circumscribed in its
    operation rather than liberal or permissive. They will be
    much less willing to do so where the subject matter is
    48
    different in kind or dimension from that for which the
    legislation was passed.”
    (at pp. 564-565)
  44. In Comdel Commodities Ltd. v. Siporex Trade S.A., [1990] 2
    All ER 552 [HL], Lord Bridge put it thus:
    “When a change in social conditions produces a novel
    situation, which was not in contemplation at the time
    when a statute was first enacted, there can be no a priori
    assumption that the enactment does not apply to the
    new circumstances. If the language of the enactment is
    wide enough to extend to those circumstances, there is
    no reason why it should not apply.”
    (at p. 557)
  45. The phrase “always speaking” is adverted to by the House of
    Lords in McCartan Turkington Breen (A Firm) v. Times
    Newspapers Ltd., [2000] 4 All ER 913. Lord Steyn, speaking for the
    Court, stated as follows:
    “The appeal to the original intent of the statute
    There is another preliminary matter to be considered.
    Counsel for the solicitors emphasised that the wording of
    paragraph 9 can be traced back to the Law of Libel
    Amendment Act 1888. He observed that at that time the
    phenomenon of press conferences was unknown. This
    was an invitation to the House to say that press
    conferences could not have been within the original
    intent of the legislature. There is a clear answer to this
    appeal to Victorian history. Unless they reveal a contrary
    intention all statutes are to be interpreted as “always
    speaking statutes”. This principle was stated and
    explained in R v Ireland, R v Burstow [1997] 4 All ER
    225 at 233, [1998] AC 147 at 158. There are at least two
    strands covered by this principle. The first is that courts
    49
    must interpret and apply a statute to the world as it exists
    today. That is the basis of the decision in R v
    Ireland where ‘bodily harm’ in a Victorian statute was
    held to cover psychiatric injury. Equally important is the
    second strand, namely that the statute must be
    interpreted in the light of the legal system as it exists
    today. In the classic work of Sir Rupert Cross, Statutory
    Interpretation (3rd edn, 1995) pp 51-52, the position is
    explained as follows:
    “The somewhat quaint statement that a statute
    is “always speaking” appears to have originated
    in Lord Thring’s exhortations to drafters
    concerning the use of the word “shall”: “An Act
    of Parliament should be deemed to be always
    speaking and therefore the present or past
    tense should be adopted, and “shall” should be
    used as an imperative only, not as a future”.
    But the proposition that an Act is always
    speaking is often taken to mean that a statutory
    provision has to be considered first and
    foremost as a norm of the current legal system,
    whence it takes its force, rather than just as a
    product of an historically defined Parliamentary
    assembly. It has a legal existence
    independently of the historical contingencies of
    its promulgation, and accordingly should be
    interpreted in the light of its place within the
    system of legal norms currently in force. Such
    an approach takes account of the viewpoint of
    the ordinary legal interpreter of today, who
    expects to apply ordinary current meanings to
    legal texts, rather than to embark on research
    into linguistic, cultural and political history,
    unless he is specifically put on notice that the
    latter approach is required.” (My emphasis.)
    In other words, it is generally permissible and indeed
    necessary to take into account the place of the statutory
    provision in controversy in the broad context of the basic
    principles of the legal system as it has evolved. If this
    proposition is right, as I believe it to be, it follows that on
    50
    ordinary principles of construction the question before
    the House must be considered in the light of the law of
    freedom of expression as it exists today. The appeal to
    the original meaning of the words of the statute must be
    rejected.”
    (at pp. 926-927)
    (emphasis supplied)
  46. This exposition of the law is to be read along with the judgment
    in Birmingham City Council v. Oakley, [2001] 1 All ER 385 [HL],
    where Lord Hoffmann cautioned thus:
    “Mr. Supperstone argued that section 79(1)(a) must be
    construed in the light of modern conditions. When it
    speaks of a ‘state … prejudicial to health’, this does not
    mean a state which would have been so regarded in
  47. It requires the application of modern knowledge
    and standards of hygiene. The words must be construed
    as ‘always speaking’ in the sense used by Lord Steyn
    in R v Ireland, R v Burstow [1997] 4 All ER 225 at 233,
    [1998] AC 147 at 158-159. I quite agree that when a
    statute employs a concept which may change in content
    with advancing knowledge, technology or social
    standards, it should be interpreted as it would be
    currently understood. The content may change but the
    concept remains the same. The meaning of the statutory
    language remains unaltered. So the concept of a vehicle
    has the same meaning today as it did in 1800, even
    though it includes methods of conveyance which would
    not have been imagined by a legislator of those days.
    The same is true of social standards. The concept of
    cruelty is the same today as it was when the Bill of
    Rights 1688 (1 Will & Mary, sess 2, c 2) forbade the
    infliction of ‘cruel and unusual punishments’ (section 10).
    But changes in social standards mean that punishments
    which would not have been regarded as cruel in 1688
    will be so regarded today.
    51
    This doctrine does not however mean that one can
    construe the language of an old statute to mean
    something conceptually different from what the
    contemporary evidence shows that Parliament must
    have intended. So, for example, in the recent case
    of Goodes v East Sussex County Council [2000] 3 All ER
    603, [2000] 1 WLR 1356, the House of Lords decided
    that the statutory duty of highway authorities to ‘maintain’
    the highway did not include the removal of ice and snow.
    Although the word ‘maintain’ was capable of including
    the removal of ice and snow and such removal might be
    expected by modern road users, the contemporary
    evidence showed that the concept of maintenance in the
    legislation was confined to keeping the fabric of the road
    in repair. To require the removal of ice and snow would
    not be to apply that concept in accordance with modern
    standards (such as requiring a metalled surface instead
    of gravel) but would be using the word ‘maintain’ to
    express a broader concept than Parliament intended.
    Such a change would not be in accordance with the
    meaning of the statute. Likewise it seems to me in this
    case that an extension of the concept of ‘premises in
    such a state as to be prejudicial to health’ to the absence
    of facilities, as such, is an illegitimate extension of the
    statutory meaning.
    My Lords, it seems to me that the temptation to
    make such an extension should be resisted for much the
    same reasons as your Lordships in Southwark London
    Borough Council v Mills [1999] 4 All ER 449, [1999] 3
    WLR 939 refused to extend the common law of nuisance
    and quiet enjoyment so as to require landlords to install
    soundproofing. Parliament has dealt expressly with the
    obligation to provide toilet facilities in different sections
    and usually in different Acts. Until 1991 it did not require
    a basin to be installed in the WC even in new
    constructions. It has never done so in respect of existing
    buildings. For the courts to give section 79(1)(a) an
    extended “modern” meaning which required suitable
    alterations to be made to existing houses would impose
    a substantial financial burden upon public and private
    owners and occupiers. I am entirely in favour of giving
    52
    the 1990 Act a sensible modern interpretation. But I do
    not think that it is either sensible or in accordance with
    modern notions of democracy to hold that when
    Parliament re-enacted language going back to the 19th
    century, it authorised the courts to impose upon local
    authorities and others a huge burden of capital
    expenditure to which the statutory language had never
    been held to apply. In my opinion the decision as to
    whether or not to take such a step should be made by
    the elected representatives of the people and not by the
    courts.”
    (at pp. 396-397)
  48. A cursory reading of Section 35A makes it clear that there is
    nothing in the aforesaid provision which would indicate that the power
    of the RBI to give directions, when it comes to the Insolvency Code,
    cannot be so given. The width of the language used in the provision
    which only uses general words such as ‘public interest’ and ‘banking
    policy’ etc. makes it clear that if otherwise available, we cannot
    interdict the use of Section 35A as a source of power for the
    impugned RBI circular on the ground that the Insolvency Code, 2016
    could not be said to have been in the contemplation of Parliament in
    1956, when Section 35A was enacted. Dr. Singhvi’s contention must,
    therefore, fail.
  49. Dr. Singhvi then relied upon the judgment in Indian Banks’
    Association (supra). In this case, the power of the RBI under Section
    53
    35A of the Banking Regulation Act was held not to extend to granting
    approval to banks under a separate and distinct enactment, namely,
    the Interest Tax Act, 1974. In this context, this Court held:
    “37. The submission of the learned counsel for the
    appellants to the effect that they had been permitted to
    enhance the rate of interest by the Reserve Bank of
    India, is equally misconceived. The Reserve Bank of
    India apparently proceeded on the basis that the mode
    of calculation of rate of interest vis-à-vis the tax under
    the Act, as contended by Appellant 1, was correct. The
    Reserve Bank of India was not an authority for
    construction of a statute. Its functions are confined only
    to the provisions of the Reserve Bank of India Act and
    the Banking Regulation Act and not any other statute.
  50. Section 35-A of the Banking Regulation Act
    empowers the Reserve Bank of India to issue directions
    in relation to matters specified under Section 35-A and
    not for any other purpose. The contention of the
    appellants to the effect that rate of interest had been
    enhanced by them pursuant to or in furtherance of the
    directions issued by the Reserve Bank of India must be
    held to be self-contradictory inasmuch as according to
    them the Reserve Bank of India fixes only the minimum
    rate of interest leaving a determination thereof in the
    case of each individual borrower upon the bank
    concerned. If the matter relating to increase in the rate of
    the interest was within the power of the appellants, we
    fail to understand as to why the Reserve Bank of India
    was approached at all. The same being not permissible
    under the Act, any approval given by the Reserve Bank
    of India for the satisfaction of the members of the first
    appellant herein was futile.”
    xxx xxx xxx
    “40. In any view of the matter, the purported directions
    contained in the letter dated 2-9-1991 of the Reserve
    Bank of India are not even in the nature of executive
    instruction under the said Act. It was not binding on the
    54
    banks, far less on the borrowers. In any event, by reason
    of a misplaced and misapplied construction of statute, a
    third party cannot suffer.
  51. Furthermore, having regard to the provisions
    contained in Article 265 of the Constitution read with
    Article 366(28) thereof, the purported demand from the
    borrower for a higher amount of tax and consequently a
    higher amount of interest by way of rounding-up was
    wholly illegal and without jurisdiction. We also fail to
    understand as to why in this modern electronic age, this
    difficulty would be encountered while calculating the
    exact amount of tax.
  52. We, therefore, are of the opinion that the purported
    approval granted by the Reserve Bank of India was
    wholly without jurisdiction and ultra vires the provisions
    of the said Act.”
    Based on this judgment, Dr. Singhvi contended that the RBI cannot
    possibly give directions as to how the banks must exercise their
    discretionary power before filing applications under Section 7 of the
    Insolvency Code. Shri Dwivedi, however, distinguished this judgment
    by stating that this was a tax case and it must be remembered that
    the entries in the Seventh Schedule qua taxation are separate from
    general entries. Even otherwise, according to Shri Dwivedi, the RBI
    directions are at a stage anterior to the application of the provisions of
    the Insolvency Code, as a result of which, this judgment would have
    no application.
    55
  53. We are of the view that Shri Dwivedi is right. If a specific
    provision of the Banking Regulation Act makes it clear that the RBI
    has a specific power to direct banks to move under the Insolvency
    Code against debtors in certain specified circumstances, it cannot be
    said that they would be acting outside the four corners of the statutes
    which govern them, namely, the RBI Act and the Banking Regulation
    Act. On this score, therefore, Dr. Singhvi’s contention must fail.
  54. Shri Dwivedi has cited certain judgments stating that
    discretionary powers given to the RBI under the Banking Regulation
    Act generally, and under Section 35A, in particular, are broad and
    expansive, and have been expansively expounded upon by this
    Court. He relied, in particular, upon Central Bank of India v.
    Ravindra, (2002) 1 SCC 367. In particular, he relied upon paragraph
    51 and paragraph 55 (5) which state:
    “51. The Banking Regulation Act, 1949 empowers the
    Reserve Bank, on it being satisfied that it is necessary or
    expedient in the public interest or in the interest of
    depositors or banking policy so to do, to determine the
    policy in relation to advances to be followed by banking
    companies generally or by any banking company in
    particular and when the policy has been so determined it
    has a binding effect. In particular, the Reserve Bank of
    India may give directions as to the rate of interest and
    other terms and conditions on which advances or other
    financial accommodation may be made. Such directions
    are also binding on every banking company. Section 35-
    56
    A also empowers the Reserve Bank of India in the public
    interest or in the interest of banking policy or in the
    interests of depositors (and so on) to issue directions
    generally or in particular which shall be binding. With
    effect from 15-2-1984 Section 21-A has been inserted in
    the Act which takes away power of the court to reopen a
    transaction between a banking company and its debtor
    on the ground that the rate of interest charged is
    excessive. The provision has been given an overriding
    effect over the Usury Loans Act, 1918 and any other
    provincial law in force relating to indebtedness.
    xxx xxx xxx
  55. During the course of hearing it was brought to our
    notice that in view of several usury laws and debt relief
    laws in force in several States private moneylending has
    almost come to an end and needy borrowers by and
    large depend on banking institutions for financial
    facilities. Several unhealthy practices having slowly
    penetrated into prevalence were pointed out. Banking is
    an organised institution and most of the banks press into
    service long-running documents wherein the borrowers
    fill in the blanks, at times without caring to read what has
    been provided therein, and bind themselves by the
    stipulations articulated by the best of legal brains.
    Borrowers other than those belonging to the corporate
    sector, find themselves having unwittingly fallen into a
    trap and rendered themselves liable and obliged to pay
    interest the quantum whereof may at the end prove to be
    ruinous. At times the interest charged and capitalised is
    manifold than the amount actually advanced. Rule of
    damdupat does not apply. Penal interest, service
    charges and other overheads are debited in the account
    of the borrower and capitalised of which debits the
    borrower may not even be aware. If the practice of
    charging interest on quarterly rests is upheld and given a
    judicial recognition, unscrupulous banks may resort to
    charging interest even on monthly rests and capitalising
    the same. Statements of accounts supplied by banks to
    borrowers many a times do not contain particulars or
    details of debit entries and when written in hand are
    worse than medical prescriptions putting to test the eyes
    57
    and wits of the borrowers. Instances of unscrupulous,
    unfair and unhealthy dealings can be multiplied though
    they cannot be generalised. Suffice it to observe that
    such issues shall have to be left open to be adjudicated
    upon in appropriate cases as and when actually arising
    for decision and we cannot venture into laying down law
    on such issues as do not arise for determination before
    us. However, we propose to place on record a few
    incidental observations, without which, we feel, our
    answer will not be complete and that we do as under:
    xxx xxx xxx
    (5) The power conferred by Sections 21 and
    35-A of the Banking Regulation Act, 1949 is
    coupled with duty to act. The Reserve Bank of
    India is the prime banking institution of the
    country entrusted with a supervisory role over
    banking and conferred with the authority of
    issuing binding directions, having statutory
    force, in the interest of the public in general and
    preventing banking affairs from deterioration
    and prejudice as also to secure the proper
    management of any banking company
    generally. The Reserve Bank of India is one of
    the watchdogs of finance and economy of the
    nation. It is, and it ought to be, aware of all
    relevant factors, including credit conditions as
    prevailing, which would invite its policy
    decisions. RBI has been issuing
    directions/circulars from time to time which,
    inter alia, deal with the rate of interest which
    can be charged and the periods at the end of
    which rests can be struck down, interest
    calculated thereon and charged and
    capitalised. It should continue to issue such
    directives. Its circulars shall bind those who fall
    within the net of such directives. For such
    transaction which are not squarely governed by
    such circulars, the RBI directives may be
    treated as standards for the purpose of
    deciding whether the interest charged is
    58
    excessive, usurious or opposed to public
    policy.”
    Similarly, in Sudhir Shantilal Mehta v. Central Bureau of
    Investigation, (2009) 8 SCC 1, he relied upon paragraphs 51 and 52
    which state as follows:
    “51. In terms of Section 35-A of the 1949 Act, Reserve
    Bank of India is empowered to issue directions to the
    banks in public interest; or in the interest of banking
    policy; or to prevent the affairs of any banking company
    being conducted in a manner detrimental to the interests
    of the depositors or in a manner prejudicial to the interest
    of the banking company; or to secure the proper
    management of any banking company generally.
  56. Reserve Bank of India in terms of Section 21 of the
    1949 Act is empowered to control advances by banking
    companies and issue necessary directions in this behalf.
    Reserve Bank of India, therefore, has the requisite
    power to issue direction to banks in relation to
    discounting and rediscounting of bills of exchange and
    those directions issued by Reserve Bank of India have
    statutory force and, thus, can be termed as law in force.
    (See also Corporation Bank v. D.S. Gowda [(1994) 5
    SCC 213] and Central Bank of India v. Ravindra [(2002)
    1 SCC 367].) All public sector banks are bound thereby.”
    Also, in ICICI Bank Ltd. v. APS Star Industries Ltd., (2010) 10 SCC
    1, this Court, when it came to whether derivatives could be a
    business which banks could do, stated with respect to Sections 21
    and 35A of the RBI Act as follows:
    “35. Section 21 deals with the power of RBI to control
    advances by banking companies. Section 21 empowers
    RBI to frame policies in relation to advances to be
    followed by banking companies. It further says that once
    59
    such policy is made all banking companies shall be
    bound to follow them. Section 21(1) is once again a
    general provision empowering RBI to determine policy in
    relation to advances whereas Section 21(2) empowers
    RBI to give directions to banking companies as to items
    mentioned there i.e. in Section 21(2). Under Section
    21(3) every banking company is bound to comply with
    directions given by RBI at the peril of penalty being
    levied for non-compliance. Section 35-A says that where
    RBI is satisfied that in the interest of banking policy it is
    necessary to issue directions to banking companies it
    may do so from time to time and the banking companies
    shall be bound to comply with such directions. Thus, in
    exercise of the powers conferred by Sections 21 and 35-
    A of the said Act, RBI can issue directions having
    statutory force of law. Section 36 deals with further
    powers and functions of RBI. Under Section 39 it is RBI
    which shall be the Official Liquidator in any proceedings
    concerning winding up of a banking company.”
    xxx xxx xxx
    “38. The BR Act, 1949 basically seeks to regulate
    banking business. In the cases in hand we are not
    concerned with the definition of banking but with what
    constitutes “banking business”. Thus, the said BR Act,
    1949 is an open-ended Act. It empowers RBI (regulator
    and policy framer in matter of advances and capital
    adequacy norms) to develop a healthy secondary
    market, by allowing banks inter se to deal in NPAs in
    order to clean the balance sheets of the banks which
    guideline/policy falls under Section 6(1)(a) read with
    Section 6(1)(n). Therefore, it cannot be said that
    assignment of debts/NPAs is not an activity permissible
    under the BR Act, 1949. Thus, accepting deposits and
    lending by itself is not enough to constitute the “business
    of banking”. The dependence of commerce on banking is
    so great that in modern money economy the cessation
    even for a day of the banking activities would completely
    paralyse the economic life of the nation. Thus, the BR
    Act, 1949 mandates a statutory comprehensive and
    formal structure of banking regulation and supervision in
    India.”
    60
    He also referred to the Statement of Objects and Reasons of the
    Amendment Act, 1956, which brought in Section 35A in order to
    tighten up control over banking companies so as to enable the RBI to
    give directions to banking companies in relation to matters of policy or
    administration affecting the public interest.
  57. There is no doubt that Sections 21 and 35A do confer very wide
    powers on the RBI to give directions when it comes to the matters
    specified therein. However, this does not answer the precise question
    before us. This question can only be answered by referring to
    Sections 35AA and 35AB.
  58. Section 35AA makes it clear that the Central Government may,
    by order, authorise the RBI to issue directions to any banking
    company or banking companies when it comes to initiating the
    insolvency resolution process under the provisions of the Insolvency
    Code. The first thing to be noted is that without such authorisation,
    the RBI would have no such power. There are many sections in the
    Banking Regulation Act which enumerate the powers of the Central
    Government vis-à-vis the powers of the RBI. Thus, Section 36ACA(1)
    provides as follows:
    61
    “36ACA. Supersession of Board of Directors in
    certain cases.—(1) Where the Reserve Bank is
    satisfied, in consultation with the Central Government,
    that in the public interest or for preventing the affairs of
    any banking company being conducted in a manner
    detrimental to the interest of the depositors or any
    banking company or for securing the proper
    management of any banking company, it is necessary so
    to do, the Reserve Bank may, for reasons to be recorded
    in writing, by order, supersede the Board of Directors of
    such banking company for a period not exceeding six
    months as may be specified in the order:
    Provided that the period of supersession of the
    Board of Directors may be extended from time to time,
    so, however, that the total period shall not exceed twelve
    months.
    xxx xxx xxx”
    This Section makes it clear that the RBI’s satisfaction in superseding
    the board of directors of banking companies can only be exercised in
    consultation with the Central Government, and not otherwise.
    Similarly, under Sections 36AE and 36AF, the Central Government
    alone has the power to acquire undertakings of banking companies in
    certain cases, on receipt of a report from the RBI. Section 36AE(1)
    reads as follows:
    “36AE. Power of Central Government to acquire
    undertakings of banking companies in certain
    cases.—(1) If, upon receipt of a report from the Reserve
    Bank, the Central Government is satisfied that a banking
    company—
    (a) has, on more than one occasion, failed to
    comply with the directions given to it in writing
    62
    under Section 21 or Section 35-A, in so far as
    such directions relate to banking policy, or
    (b) is being managed in a manner detrimental
    to the interests of its depositors,—
    and that—
    (i) in the interests of the depositors of such
    banking company, or
    (ii) in the interest of banking policy, or
    (iii) for the better provision of credit generally or
    of credit to any particular section of the
    community or in any particular area;
    it is necessary to acquire the undertaking of such
    banking company, the Central Government may, after
    such consultation with the Reserve Bank as it thinks fit,
    by notified order, acquire the undertaking of such
    company (hereinafter referred to as the acquired bank)
    with effect from such date as may be specified in this
    behalf by the Central Government (hereinafter referred
    to as the appointed day):
    Provided that no undertaking of any banking
    company shall be so acquired unless such banking
    company has been given a reasonable opportunity of
    showing cause against the proposed action.
    Explanation.—In this Part,—
    (a) “notified order” means an order published
    in the Official Gazette;
    (b) “undertaking,” in relation to a banking
    company incorporated outside India, means the
    undertaking of the company in India.
    xxx xxx xxx”
    Likewise, under Section 36AF, the Central Government may, after
    consulting the RBI, make a scheme for carrying out the purpose of
    63
    acquisition of such undertakings of banking companies. Section
    36AF(1) reads as follows:
    “36AF. Power of the Central Government to make
    scheme.—(1) The Central Government may, after
    consultation with the Reserve Bank, make a scheme for
    carrying out the purposes of this Part in relation to any
    acquired bank.
    xxx xxx xxx”
    Under Section 45Y, the Central Government may after consulting the
    RBI make rules for preservation of records as follows:
    “45Y. Power of Central Government to make rules for
    the preservation of records.—The Central Government
    may, after consultation with the Reserve Bank and by
    notification in the Official Gazette, make rules specifying
    the periods for which—
    (a) a banking company shall preserve its books,
    accounts and other documents; and
    (b) a banking company shall preserve and keep
    with itself different instruments paid by it.”
    Under Section 52(1), the Central Government may, after consultation
    with the RBI, make rules to give effect to the provisions of the Act as
    follows:
    “52. Power of Central Government to make rules.—
    (1) The Central Government may, after consultation with
    the Reserve Bank, make rules to provide for all matters
    for which provision is necessary or expedient for the
    purpose of giving effect to the provisions of this Act and
    all such rules shall be published in the Official Gazette.
    xxx xxx xxx”
    64
    Importantly, the Central Government may, on the recommendation of
    the RBI, declare that all or any of the provisions of the Banking
    Regulation Act shall not apply to any banking company, either
    generally or for a prescribed period. Section 53(1) of the Act reads as
    follows:
    “53. Power to exempt in certain cases.—(1) The
    Central Government may, on the recommendation of the
    Reserve Bank, declare, by notification in the Official
    Gazette, that any or all of the provisions of this Act shall
    not apply to any banking company or institution or to any
    class of banking companies either generally or for such
    period as may be specified.
    xxx xxx xxx”
    The power to remove difficulties is also vested in the Central
    Government under Section 55A of the Act, which reads as follows:
    “55A. Power to remove difficulties.—If any difficulty
    arises in giving effect to the provisions of this Act, the
    Central Government may, by order, as occasion
    requires, do anything (not inconsistent with the
    provisions of this Act) which appears to it to be
    necessary for the purpose of removing the difficulty:
    Provided that no such power shall be exercised after
    the expiry of a period of three years from the
    commencement of Section 20 of the Banking Laws
    (Amendment) Act, 1968.”
    A conspectus of all these provisions shows that the Banking
    Regulation Act specifies that the Central Government is either to
    exercise powers along with the RBI or by itself. The role assigned,
    65
    therefore, by Section 35AA, when it comes to initiating the insolvency
    resolution process under the Insolvency Code, is thus, important.
    Without authorisation of the Central Government, obviously, no such
    directions can be issued.
  59. The corollary of this is that prior to the enactment of Section
    35AA, it may have been possible to say that when it comes to the RBI
    issuing directions to a banking company to initiate insolvency
    resolution process under the Insolvency Code, it could have issued
    such directions under Sections 21 and 35A. But after Section 35AA,
    it may do so only within the four corners of Section 35AA.
  60. The matter can be looked at from a slightly different angle. If a
    statute confers power to do a particular act and has laid down the
    method in which that power has to be exercised, it necessarily
    prohibits the doing of the act in any manner other than that which has
    been prescribed. This is the well-known rule in Taylor v. Taylor,
    [1875] 1 Ch. D. 426, which has been repeatedly followed by this
    Court. Thus, in State of U.P. v. Singhara Singh, (1964) 4 SCR 485,
    this Court held:
    “The rule adopted in Taylor v. Taylor [(1875) 1 Ch D 426,
    431] is well recognised and is founded on sound
    principle. Its result is that if a statute has conferred a
    66
    power to do an act and has laid down the method in
    which that power has to be exercised, it necessarily
    prohibits the doing of the act in any other manner than
    that which has been prescribed. The principle behind the
    rule is that if this were not so, the statutory provision
    might as well not have been enacted. A Magistrate,
    therefore, cannot in the course of investigation record a
    confession except in the manner laid down in Section
  61. The power to record the confession had obviously
    been given so that the confession might be proved by
    the record of it made in the manner laid down. If proof of
    the confession by other means was permissible, the
    whole provision of Section 164 including the safeguards
    contained in it for the protection of accused persons
    would be rendered nugatory. The section, therefore, by
    conferring on Magistrates the power to record
    statements or confessions, by necessary implication,
    prohibited a Magistrate from giving oral evidence of the
    statements or confessions made to him.”
    (at pp. 490-491)
    Following this principle, therefore, it is clear that the RBI can only
    direct banking institutions to move under the Insolvency Code if two
    conditions precedent are specified, namely, (i) that there is a Central
    Government authorisation to do so; and (ii) that it should be in
    respect of specific defaults. The Section, therefore, by necessary
    implication, prohibits this power from being exercised in any manner
    other than the manner set out in Section 35AA.
  62. Shri Dwivedi then argued relying upon the Finance Minister’s
    speech that Section 35AA was really enacted by way of abundant
    caution inasmuch as there was a doubt as to whether such power
    67
    could be exercised generally or otherwise. He relied, in particular, on
    the following statement in the speech of the Finance Minister, Shri
    Arun Jaitley, while moving the Bill which introduced Sections 35AA
    and 35AB into the Banking Regulation Act. The Finance Minister
    stated:
    “This issue was discussed at length. There were two
    views that the general power may not include this power.
    One view was exactly what you are saying. The other
    view was this. It is a very short amendment. Therefore,
    to obviate any controversy, the RBI will direct the
    consortium of banks to go and move an IBC insolvency
    petition.”
  63. A Finance Minister’s speech, introducing certain provisions, can
    certainly shed some light on such provisions, particularly in cases of
    ambiguity. In the present case, what is missed is the fact that two
    conditions precedent have been introduced in Section 35AA, without
    which, power cannot be exercised by the RBI. This itself shows that it
    is not possible to say that Section 35AA has been introduced ex
    abundanti cautela. Further, it is well settled that Parliament does not
    legislate where no legislation is called for. Thus, in Utkal
    Contractors & Joinery (P) Ltd. v. State of Orissa, (1987) 3 SCC
    279, this Court held:
    “9. In considering the rival submissions of the learned
    Counsel and in defining and construing the area and the
    68
    content of the Act and its provisions, it is necessary to
    make certain general observations regarding the
    interpretation of statutes. A statute is best understood if
    we know the reason for it. The reason for a statute is the
    safest guide to its interpretation. The words of a statute
    take their colour from the reason for it. How do we
    discover the reason for a statute? There are external and
    internal aids. The external aids are Statement of Objects
    and Reasons when the Bill is presented to Parliament,
    the reports of committees which preceded the Bill and
    the reports of Parliamentary Committees. Occasional
    excursions into the debates of Parliament are permitted.
    Internal aids are the preamble, the scheme and the
    provisions of the Act. Having discovered the reason for
    the statute and so having set the sail to the wind, the
    interpreter may proceed ahead. No provision in the
    statute and no word of the statute may be construed in
    isolation. Every provision and every word must be looked
    at generally before any provision or word is attempted to
    be construed. The setting and the pattern are important.
    It is again important to remember that Parliament does
    not waste its breath unnecessarily. Just as Parliament is
    not expected to use unnecessary expressions,
    Parliament is also not expected to express itself
    unnecessarily. Even as Parliament does not use any
    word without meaning something, Parliament does not
    legislate where no legislation is called for. Parliament
    cannot be assumed to legislate for the sake of
    legislation; nor can it be assumed to make pointless
    legislation. Parliament does not indulge in legislation
    merely to state what it is unnecessary to state or to do
    what is already validly done. Parliament may not be
    assumed to legislate unnecessarily. Again, while the
    words of an enactment are important, the context is no
    less important. For instance:
    “…the fact that general words are used in a
    statute is not in itself a conclusive reason why
    every case falling literally within them should be
    governed by that statute, and the context of an
    Act may well indicate that wide or general
    69
    words should be given a restrictive meaning.”
    [Halsbury 4
    th Edn., Vol. 44 p. 874]”
    This contention of Shri Dwivedi must, therefore, fail.
  64. Yet another contention of Shri Dwivedi is that concurrent
    powers have been given to the RBI on a combined reading of
    Sections 21, 35A, 35AA, and 35AB. Interestingly, when concurrent
    powers are given to the same or to two different authorities, the
    Banking Regulation Act expressly says so. Thus, Section 35(1) of the
    Act is an example of concurrent power given to the RBI as well as to
    the Central Government. Section 35(1) of the Act reads as follows:
    “35. Inspection.—(1) Notwithstanding anything to the
    contrary contained in Section 235 of the Companies Act,
    1956, the Reserve Bank at any time may, and on being
    directed so to do by the Central Government shall, cause
    an inspection to be made by one or more of its officers of
    any banking company and its books and accounts; and
    the Reserve Bank shall supply to the banking company a
    copy of its report on such inspection.
    xxx xxx xxx”
    When it comes to the inspection of books of accounts, the RBI may,
    either by itself or by being directed to do so by the Central
    Government, cause an inspection to be made of any banking
    company’s books and accounts in the manner specified in the
    Section. This is to be contrasted with Section 35AA, which makes it
    clear that de hors the authorisation of the Central Government, the
    70
    RBI has no power to issue directions on its own, unlike Section 35.
    This argument also must, therefore, fail.
  65. Shri Dwivedi then argued that Section 35AB uses the words
    “without prejudice” to indicate that the power granted under the said
    Section was to be read as additional to other powers granted by
    Sections 35A and 35AA. This Court, in Bharat Sanchar Nigam Ltd.
    v. Telecom Regulatory Authority of India and Ors., (2014) 3 SCC
    222, at paragraphs 90 to 97, has indicated that the words “without
    prejudice” appearing in a Section make it clear that powers that are
    enumerated are only illustrative of a general power and do not restrict
    such general power. Indeed, in Union of India and Anr. v. Pfizer
    Ltd. and Ors., (2018) 2 SCC 39, this Court held:
    “14. Having heard the learned counsel for the parties, it
    is clear that Section 26-A has been introduced by an
    amendment in 1982. A bare reading of this provision
    would show, firstly, that it is without prejudice to any
    other provision contained in this Chapter (meaning
    thereby Chapter IV). This expression only means that
    apart from the Central Government’s other powers
    contained in Chapter IV, Section 26-A is an additional
    power which must be governed by its own terms. Under
    Section 26-A, the Central Government must be
    “satisfied” that any drug or cosmetic is likely to involve (i)
    any risk to human beings or families; or (ii) that any drug
    does not have the therapeutic value claimed or
    purported to be claimed for it; or (iii) contains ingredients
    in such quantity for which there is no therapeutic
    justification. Obviously, the Central Government has to
    71
    apply its mind to any or all of these three factors which
    has to be based upon its “satisfaction” as to the
    existence of any or all of these factors. The power
    exercised under Section 26-A must further be exercised
    only if it is found necessary or expedient to do so in
    public interest. When the power is so exercised, it may
    regulate, restrict or prohibit manufacture, sale or
    distribution of any drug or cosmetic.”
    Thus, the power to issue directions given by Section 35AB is in
    addition to the power that is given under Section 35A.
  66. It is significant that the power to issue directions given by
    Section 35AB is without prejudice only to the provisions of Section
    35A, i.e., it has to be read in conjunction with Section 35A. What is of
    even greater significance is that Section 35AB is not without prejudice
    to the provisions contained in Section 35AA. This being so, it is clear
    that the power under Section 35AB, read with Section 35A, is to be
    exercised separately from the power conferred by Section 35AA.
  67. All the learned counsel appearing on both sides referred to
    external aids to construe the statute at hand. In Eera (through Dr.
    Manjula Krippendorf) v. State (NCT of Delhi) and Anr., (2017) 15
    SCC 133, Nariman, J. referred to what may be called the theory of
    creative interpretation. Instances of creative interpretation are when
    the Court looks at both the literal language as well as the purpose or
    object of the statute in order to better determine what the words used
    72
    by the draftsman of legislation mean [see paragraph 122]. He then
    concluded:
    “127. It is thus clear on a reading of English, US,
    Australian and our own Supreme Court judgments that
    the “Lakshman Rekha” has in fact been extended to
    move away from the strictly literal rule of interpretation
    back to the rule of the old English case
    of Heydon [Heydon case, (1584) 3 Co Rep 7a : 76 ER
    637] , where the Court must have recourse to the
    purpose, object, text and context of a particular provision
    before arriving at a judicial result. In fact, the wheel has
    turned full circle. It started out by the rule as stated in
    1584 in Heydon case [Heydon case, (1584) 3 Co Rep 7a
    : 76 ER 637] , which was then waylaid by the literal
    interpretation rule laid down by the Privy Council and the
    House of Lords in the mid-1800s, and has come back to
    restate the rule somewhat in terms of what was most
    felicitously put over 400 years ago in Heydon
    case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637].”
    This judgment has since been followed by this Court in ArcelorMittal
    India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 [at paragraph
    29]; Asian Resurfacing of Road Agency (P) Ltd. v. Central
    Bureau of Investigation, (2018) 16 SCC 299 [at paragraph 51.5];
    Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2
    SCC 674 [at paragraphs 27 and 30]; State (NCT of Delhi) v. Brijesh
    Singh, (2017) 10 SCC 779 [at paragraph 13].
  68. The Press Note dated 05.05.2017, set out supra, explained the
    new Sections 35AA and 35AB as the grant of two distinct and
    73
    separate powers. Section 35AA has been inserted “to resolve specific
    stressed assets by initiating insolvency resolution process where
    required”. On the other hand, Section 35AB has been enacted so that
    the “RBI has also been empowered to issue other directions for
    resolution……” It is significant that Section 35AA is enacted exactly
    as it is in the Ordinance. So is Section 35AB, except for a minor
    addition in sub-section (1), which adds the words “any banking
    company or”. Indeed, even the Statement of Objects and Reasons
    introducing the same Sections by way of an Amendment Act makes it
    clear that the powers conferred for resolution of stressed assets,
    either by invoking the Insolvency Code or by other means, are
    separate and independent powers, as set out in paragraphs 3(a) and
    3(b) of the said Statement of Objects and Reasons. Therefore, the
    scheme of Sections 35A, 35AA, and 35AB is as follows:
    (a) When it comes to issuing directions to initiate the insolvency
    resolution process under the Insolvency Code, Section 35AA is
    the only source of power.
    (b) When it comes to issuing directions in respect of stressed
    assets, which directions are directions other than resolving this
    problem under the Insolvency Code, such power falls within
    Section 35A read with Section 35AB. This also becomes clear
    74
    from the fact that Section 35AB(2) enables the RBI to specify
    one or more authorities or committees to advise any banking
    company on resolution of stressed assets. This advice is
    obviously de hors the Insolvency Code, as once an application
    is made under the Insolvency Code, such advice would be
    wholly redundant, as the Insolvency Code provisions would
    then take over and have to be followed.
  69. When one section of a statute grants general powers, as
    opposed to another section of the same statute which grants specific
    powers, the general provisions cannot be utilised where a specific
    provision has been enacted with a specific purpose in mind. Thus, in
    J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P.,
    (1961) 3 SCR 185, this Court held:
    “9. There will be complete harmony however if we hold
    instead that clause 5(a) will apply in all other cases of
    proposed dismissal or discharge except where an inquiry
    is pending within the meaning of clause 23. We reach
    the same result by applying another well-known rule of
    construction that general provisions yield to special
    provisions. The learned Attorney-General seemed to
    suggest that while this rule of construction is applicable
    to resolve the conflict between the general provision in
    one Act and the special provision in another Act, the rule
    cannot apply in resolving a conflict between general and
    special provisions in the same legislative instrument.
    This suggestion does not find support in either principle
    or authority. The rule that general provisions should yield
    75
    to specific provisions is not an arbitrary principle made
    by lawyers and Judges but springs from the common
    understanding of men and women that when the same
    person gives two directions one covering a large number
    of matters in general and another to only some of them
    his intention is that these latter directions should prevail
    as regards these while as regards all the rest the earlier
    direction should have effect. In Pretty v. Solly (quoted in
    Craies on Statute Law at p.m. 206, 6th Edn.) Romilly,
    M.R., mentioned the rule thus: “The rule is, that
    whenever there is a particular enactment and a general
    enactment in the same statute and the latter, taken in its
    most comprehensive sense, would overrule the former,
    the particular enactment must be operative, and the
    general enactment must be taken to affect only the other
    parts of the statute to which it may properly apply”. The
    rule has been applied as between different provisions of
    the same statute in numerous cases some of which only
    need be mentioned: De Winton v. Brecon [28 LJ Ch
    598], Churchill v. Crease [5 Bing 177], United States v.
    Chase [135 US 255] and Carroll v. Greenwich Ins. Co.
    [199 US 401].”
    This judgment has been followed in Commercial Tax Officer,
    Rajasthan v. Binani Cements Ltd. and Anr., (2014) 8 SCC 319 [at
    paragraph 39].
  70. Stressed assets can be resolved either through the Insolvency
    Code or otherwise. When resolution through the Code is to be
    effected, the specific power granted by Section 35AA can alone be
    availed by the RBI. When resolution de hors the Code is to be
    effected, the general powers under Sections 35A and 35AB are to be
    used. Any other interpretation would make Section 35AA otiose. In
    76
    fact, Shri Dwivedi’s argument that the RBI can issue directions to a
    banking company in respect of initiating insolvency resolution process
    under the Insolvency Code under Sections 21, 35A, and 35AB of the
    Banking Regulation Act, would obviate the necessity of a Central
    Government authorisation to do so. Absent the Central Government
    authorisation under Section 35AA, it is clear that the RBI would have
    no such power.
  71. Having grounded the power to issue directions to banking
    companies so far as the Insolvency Code is concerned, in Section
    35AA, what is important to note is that the Section enables the
    Central Government to authorise the RBI to issue such directions in
    respect of “a default”. Default, in the explanation to Section 35AA,
    has the same meaning assigned to it under Section 3(12) of the
    Insolvency Code. Section 3(12) of the Insolvency Code reads as
    under:
    “3. Definitions.—In this Code, unless the context
    otherwise requires,—
    xxx xxx xxx
    (12) “default” means non-payment of debt when whole or
    any part or instalment of the amount of debt has become
    due and payable and is not paid by the debtor or the
    corporate debtor, as the case may be;
    xxx xxx xxx”
    77
    “Debt” has been defined under Section 3(11) of the Insolvency Code
    as follows:
    “3. Definitions.—In this Code, unless the context otherwise
    requires,—
    xxx xxx xxx
    (11) “debt” means a liability or obligation in respect of a claim
    which is due from any person and includes a financial debt and
    operational debt;
    xxx xxx xxx”
    Also, “corporate debtor” has been defined under Section 3(8) of the
    Insolvency Code as follows:
    “3. Definitions.—In this Code, unless the context otherwise
    requires,—
    xxx xxx xxx
    (8) “corporate debtor” means a corporate person who owes a
    debt to any person;
    xxx xxx xxx”
    A reading of these definitions would make it clear that default would
    mean non- payment of a debt when it has become due and payable
    and is not paid by the corporate debtor. Therefore, what is important
    to note is that it is a particular default of a particular debtor that is the
    subject matter of Section 35AA. It must also be observed that the
    expression “issue directions to banking companies generally or to any
    banking company in particular” occurring in Section 35A is
    conspicuous by its absence in Section 35AA. This is another good
    78
    reason as to why Section 35AA refers only to specific cases of default
    and not to the issuance of directions to banking companies generally,
    as has been done by the impugned circular.
  72. This is clear also from the Press Note dated 05.05.2017, which
    introduced the Ordinance which specifically referred to resolution of
    “specific” stressed assets which will empower the RBI to intervene in
    “specific” cases of resolution of NPAs. The Statement of Objects and
    Reasons for introducing Section 35AA also emphasises that
    directions are in respect of “a default”. Thus, it is clear that directions
    that can be issued under Section 35AA can only be in respect of
    specific defaults by specific debtors. This is also the understanding of
    the Central Government when it issued the notification dated
    05.05.2017, which authorised the RBI to issue such directions only in
    respect of “a default” under the Code. Thus, any directions which are
    in respect of debtors generally, would be ultra vires Section 35AA.
  73. However, Shri Dwivedi argued that “specific cases” would
    include specification by category or class. All the definitions given by
    him in his written argument, however, belie this. Thus, in the Oxford
    Dictionary, the word “specific” is defined as follows:
    79
    “Specific / adjective 1. clearly defined. 2. relating to
    particular subject; peculiar. 3. exact; giving full details. 4.
    archaic (of medicine etc.) for a particular disease. noun
  74. archaic specific medicine. 2. specific aspect.”
    Black’s Law Dictionary also defines the word “specific” as follows:
    “specific, adj. 1. Of, relating to, or designating a
    particular or defined thing; explicit . 2.
    Of, relating to, or involving a particular named thing
    . 3. Conformable to special requirements
    . – specificity, n. – specifically,
    adv.”
    Shri Dwivedi referred to Maru Ram and Ors. v. Union of India and
    Ors., (1981) 1 SCC 107, to argue that specification by category
    would be something well-known to law. He relied upon paragraph 33
    of the aforesaid judgment which reads as follows:
    “33. The anatomy of this savings section is simple, yet
    subtle. Broadly speaking, there are three components to
    be separated. Firstly, the Procedure Code generally
    governs matters covered by it. Secondly, if a special or
    local law exists covering the same area, this latter law
    will be saved and will prevail. The short-sentencing
    measures and remission Schemes promulgated by the
    various States are special and local laws and must
    override. Now comes the third component which may be
    clinching. If there is a specific provision to the contrary,
    then that will override the special or local law. Is Section
    433-A a specific law contra? If so, that will be the last
    word and will hold even against the special or local law.”
    A reading of paragraph 33 would show that the specific provision to
    the contrary, referred to therein, would refer only to a particular
    80
    Section, as opposed to a category or Chapter which contains various
    Sections. This judgment, therefore, directly militates against the
    submission of Shri Dwivedi in this behalf.
  75. Shri Dwivedi then relied upon Section 13 of the General
    Clauses Act, 1897 [“General Clauses Act”] to state that the singular
    would include the plural. There is no doubt whatsoever that this would
    be so unless the context otherwise requires, as is provided by
    Section 13 of the General Clauses Act itself. In the present case, the
    context of Section 35AA makes it clear, as has been correctly argued
    by Shri Tushar Mehta, learned Solicitor General, that the power to be
    exercised under the authorisation of the Central Government requires
    “due deliberation and care” to refer to specific defaults. This argument
    also does not take Shri Dwivedi very much further.
  76. The impugned circular states as one of its sources, the power
    contained in Section 45L of the RBI Act insofar as non-banking
    financial institutions are concerned. Non-banking financial institutions
    are referred to in Section 45-I(c) as follows:
    “45-I. Definitions.—In this Chapter, unless the context
    otherwise requires,—
    xxx xxx xxx
    81
    (c) ‘‘financial institution’’ means any non-banking
    institution which carries on as its business or part of its
    business any of the following activities, namely:–
    (i) the financing, whether by way of making
    loans or advances or otherwise, of any activity
    other than its own;
    (ii) the acquisition of shares, stock, bonds,
    debentures or securities issued by a
    Government or local authority or other
    marketable securities of a like nature;
    (iii) letting or delivering of any goods to a
    hirer under a hire-purchase agreement as
    defined in clause (c) of section 2 of the HirePurchase Act, 1972;
    (iv) the carrying on of any class of insurance
    business;
    (v) managing, conducting or supervising, as
    foreman, agent or in any other capacity, of chits
    or kuries as defined in any law which is for the
    time being in force in any State, or any
    business, which is similar thereto;
    (vi) collecting, for any purpose or under any
    scheme or arrangement by whatever name
    called, monies in lumpsum or otherwise, by way
    of subscriptions or by sale of units, or other
    instruments or in any other manner and
    awarding prizes or gifts, whether in cash or
    kind, or disbursing monies in any other way, to
    persons from whom monies are collected or to
    any other person,
    but does not include any institution, which carries on as
    its principal business,–
    (a) agricultural operations; or
    (aa) industrial activity; or
    Explanation.–For the purposes of this clause,
    ‘‘industrial activity’’ means any activity specified in subclauses (i) to (xviii) of clause (c) of section 2 of the
    Industrial Development Bank of India Act, 1964;
    82
    (b) the purchase or sale of any goods (other
    than securities) or the providing of any services;
    or
    (c) the purchase, construction or sale of
    immovable property, so however, that no
    portion of the income of the institution is derived
    from the financing of purchases, constructions
    or sales of immovable property by other
    persons;
    xxx xxx xxx”
    Section 45L reads as follows:
    “45L. Power of Bank to call for information from
    financial institutions and to give directions.—(1) If
    the Bank is satisfied for the purpose of enabling it to
    regulate the credit system of the country to its advantage
    it is necessary so to do, it may—
    (a) require financial institutions either generally
    or any group of financial institutions or financial
    institution in particular, to furnish to the Bank in
    such form, at such intervals and within such
    time, such statements, information or
    particulars relating to the business of such
    financial institutions or institution, as may be
    specified by the Bank by general or special
    order;
    (b) give to such institutions either generally or
    to any such institution in particular, directions
    relating to the conduct of business by them or
    by it as financial institutions or institution.
    (2) Without prejudice to the generality of the power
    vested in the Bank under clause (a) of sub-section (1),
    the statements, information or particulars to be furnished
    by a financial institution may relate to all or any of the
    following matters, namely, the paid-up capital, reserves
    or other liabilities, the investments whether in
    Government securities or otherwise, the persons to
    whom, and the purposes and periods for which, finance
    83
    is provided and the terms and conditions, including the
    rates of interest, on which it is provided.
    (3) In issuing directions to any financial institution under
    clause (b) of sub-section (1), the Bank shall have due
    regard to the conditions in which, and the objects for
    which, the institution has been established, its statutory
    responsibilities, if any, and the effect the business of
    such financial institution is likely to have on trends in the
    money and capital markets.”
    There is nothing to show that the provisions of Section 45L(3) have
    been satisfied in issuing the impugned circular. The impugned
    circular nowhere says that the RBI has had due regard to the
    conditions in which and the objects for which such institutions have
    been established, their statutory responsibilities, and the effect the
    business of such financial institutions is likely to have on trends in the
    money and capital markets. Further, it is clear that the impugned
    circular applies to banking and non-banking institutions alike, as
    banking and non-banking institutions are often in a joint lenders’
    forum which jointly lend sums of money to debtors. Such non-banking
    financial institutions are, therefore, inseparable from banking
    institutions insofar as the application of the impugned circular is
    concerned. It is very difficult to segregate the non-banking financial
    institutions from banks so as to make the circular applicable to them
    even if it is ultra vires insofar as banks are concerned. For these
    84
    reasons also, the impugned circular will have to be declared as ultra
    vires as a whole, and be declared to be of no effect in law.
    Consequently, all actions taken under the said circular, including
    actions by which the Insolvency Code has been triggered must fall
    along with the said circular. As a result, all cases in which debtors
    have been proceeded against by financial creditors under Section 7
    of the Insolvency Code, only because of the operation of the
    impugned circular will be proceedings which, being faulted at the very
    inception, are declared to be non-est.
  77. In view of the declaration by this Court that the impugned
    circular is ultra vires Section 35AA of the Banking Regulation Act, it is
    unnecessary to go into any of the other contentions that have been
    raised in the transferred cases and petitions. The transferred cases
    and petitions are disposed of accordingly.
    ………………………… J.
    (R.F. NARIMAN)
    ………………………… J.
    (VINEET SARAN)
    New Delhi;
    April 2, 2019.