Non-participation of Deutsche Bank does not invalidate the resolution process for Ganjam Nagappa And Son Private Limited, rules court.
In a significant ruling, the Karnataka High Court has affirmed the validity of the resolution process under the Reserve Bank of India's Prudential Framework for Resolution of Stressed Assets, 2019, despite the non-participation of Deutsche Bank in lender meetings. The court held that decisions taken by a requisite majority of lenders are binding and do not require unanimity, thus not invalidating the process even if one lender abstains.
The case arose from a writ petition filed by Ganjam Nagappa And Son Private Limited, a luxury jewellery retailer, challenging the actions of several banks, including the classification of its account as a non-performing asset (NPA). The petitioner claimed that Deutsche Bank's absence from meetings under the Prudential Framework vitiated the entire resolution process.
Justice Lalitha Kanneganti, presiding over the case, emphasized that the framework's intent is to prevent individual lenders from obstructing the resolution process. She stated that the majority's decision, representing 75% by value and 60% by number, is sufficient to proceed with the resolution plan, ensuring financial stability and regulatory discipline within the banking system.
The court also addressed the petitioner's grievances regarding the Reserve Bank of India's handling of their representations and the classification of debts. It directed the RBI to consider any pending representations from the petitioner within four weeks but advised the petitioner to approach the Debts Recovery Tribunal for issues related to the SARFAESI Act.
This judgment reinforces the RBI's framework designed to streamline the resolution of stressed assets and prevent undue delay due to non-cooperation by a minority of lenders.
Bottom line:-
Banking Law - Non-participation of a lender in meetings under the RBI Prudential Framework for Resolution of Stressed Assets, 2019, does not vitiate the resolution process if the requisite majority of lenders have approved the plan.
Statutory provision(s): Banking Regulation Act, 1949, SARFAESI Act, 2002, Prudential Framework for Resolution of Stressed Assets, 2019.
