Holding

Sections 35AA and 35AB are constitutionally valid, but the RBI circular of 12‑02‑2018 is ultra vires and of no legal effect.

Summary

The petitioners, led by Dharani Sugars and Chemicals Ltd., challenged the constitutional validity of the Banking Regulation (Amendment) Act, 2017 which introduced sections 35AA and 35AB, and contended that the RBI circular of 12‑02‑2018 directing banks and NBFCs to resolve stressed assets within six months was ultra vires. The Court examined whether the new provisions were manifestly arbitrary, suffered from a lack of guiding principles, and whether the circular exceeded the powers conferred by sections 35AA, 35AB and the RBI Act. It held that sections 35AA and 35AB are valid regulatory provisions, not arbitrary, and that sufficient guidance exists in the Banking Regulation Act and its ancillary sections. However, the circular was declared ultra vires because it attempted to issue directions beyond the specific‑default scope of section 35AA and failed to satisfy the conditions of section 45L for non‑banking institutions. Consequently, the circular was held to have no legal effect. The Court disposed of all transferred petitions and cases.

Issues considered

The constitutionality of sections 35AA and 35AB of the Banking Regulation Act, 1949 on the grounds of manifest arbitrariness and excessive delegation of power.
Whether the RBI circular dated 12‑02‑2018 is ultra vires the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934.
The proper interpretation of the powers conferred by sections 35AA, 35AB and 35A with respect to initiating insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.
The applicability of the circular to non‑banking financial institutions under section 45L of the RBI Act.
Whether adequate legislative guidelines exist for the RBI to exercise the powers under the newly added sections.

Legislation cited

Banking Regulation Act, 1949s. 14A, s. 17, s. 18, s. 20, s. 21, s. 22, s. 25, s. 29, s. 30, s. 31, s. 35A, s. 35AA, s. 35AB, s. 36ACA, s. 36AE, s. 36AF, s. 45Y, s. 52, s. 53, s. 55A
General Clauses Act, 1897s. 13
Insolvency and Bankruptcy Code, 2016s. 3(11), s. 3(12), s. 3(8), s. 7
Reserve Bank of India Act, 1934s. 45L

Subjects

Banking Regulation ActInsolvency and Bankruptcy CodeRBI circularconstitutional validityultra viresmanifest arbitrarinesssection 35AAsection 35ABpublic intereststressed assetsnon‑banking financial institutions

Judgment

[2019] 6 S.C.R. 307 307

DHARANI SUGARS AND CHEMICALS LTD. A
v.
UNION OF INDIA & ORS.
(Transferred Case (Civil) No.66 of 2018)
In B
(Transfer Petition (Civil) No.1399 of 2018)
APRIL 02, 2019
[R. F. NARIMAN AND VINEET SARAN, JJ.]
C
Banking Regulation Act, 1949 – ss.35AA and 35AB – Validity
of – Petitioners contended that the Banking Regulation (Amendment)
Act, 2017, which introduced ss.35AA and 35AB are unconstitutional
on two grounds: (i) that the sections introduced are manifestly
arbitrary; and (ii) that they suffer from absence of guidelines –
Held: The Banking Regulation (Amendment) Act, 2017 brought these D
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 – S.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 E
banking companies either generally or in particular – Similarly, u/
s.35A, vast powers are given to issue necessary directions to banking
companies in public interest – Therefore, ss.35AA and 35AB which
give the RBI certain regulatory powers cannot be said to be manifestly
arbitrary – Insofar, guidelines by which the power given to the RBI F
is to be exercised are concerned, there are catena of judgments that
such guidance can be obtained not only from the statement of objects
and reasons and preamble to the Act but also from its provisions –
There are other regulatory ss.25, 29, 30 and 31, all give guidance
as to how the RBI is to exercise these powers under the newly added
provisions – Consequently, plea of constitutional validity failed – G
Banking Regulation (Amendment) Act, 2017.
Banking Regulation Act, 1949 – s.35A, 35AA and 35AB –
Reserve Bank of India Act, 1934 – s.45L – Reserve Bank of India
issued a circular on 12.02.2018, by which RBI promulgated a revised
H
307
308 SUPREME COURT REPORTS [2019] 6 S.C.R.

A framework for resolution of stressed assets – According to RBI, the
said circular attempted 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 assests or
otherwise, if they cannot do so, would only then have to move under
the insolvency and Bankruptcy Code, 2016 – It was also contended
B
that the said circular traced its power from sections 21, 35A, 35AA
and 35AB of the Banking Regulation Act and s.45L of the Reserve
Bank of India Act – Petitioner contended that impugned RBI Circular
dated 12.02.2018 was ultra vires the provisions of the Banking
Regulation Act and the RBI Act – Held: Stressed assets can be
C resolved either through the Insolvency Code or otherwise – When
resolution through the Code is to be effected, the specific power
granted by s.35AA can alone be availed by the RBI – Prior to the
enactment of s.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
D
have been issued such directions u/ss. 21 and 35A – But after s.35AA,
it may do so only within the four corners of s.35AA – And power u/
s.35AB r/w. 35A is to be exercised separately from the power
conferred by s.35AA – Now, the directions that can be issued u/s.
35AA can only be in respect of specific defaults by specific debtors
E – This was also the understanding of the Central Government when
it issued a notification dated 05.05.2017, which authorised the RBI
to issue such directions only in respect of “a default” under the
insolvency Code – Thus, any directions which are in respect of
debtors generally, would be ultra vires s.35AA – In the instant case,
impugned circular dated 12.02.2018 stated that as one of its sources,
F
the power contained in s.45L of the RBI Act insofar as non-banking
financial institution are concerned – However, there is nothing to
show that the provisions of s.45L(3) were satisfied – Further,
impugned Circular dated 12.02.2018 applied to banking and non-
banking institutions alike, therefore, they are inseparable insofar
G 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 declared as ultra vires as a whole and declared
to be of no effect in law – Insolvency and Bankruptcy Code, 2016.
H
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 309
INDIA & ORS.

Banking Regulation Act, 1949 – ss.35A, 35AA and 35AB – A
Scheme of – Held: When it comes to issuing directions to initiate the
insolvency resolution process under the Insolvency and Bankruptcy
Code, 2016, s.35AA is the only source of power – When it comes to
issuing directions in respect of stressed assets, which directions are
directions other than resolving this problem under the Insolvency
B
Code, such power falls within s.35A r/w. s.35AB – This also becomes
clear from the fact that s.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 C
Insolvency Code provisions would then take over and have to be
followed – Insolvency and Bankruptcy Code, 2016
Disposing of the Transferred cases and Petitions, the Court
HELD: CONSTITUTIONAL VALIDITY
D
1. The petitioners have argued that the Banking Regulation
(Amendment) Ordinance, 2017 and the Banking Regulation
(Amendment) Act, 2017 are unconstitutional on two grounds; (i)
that the Sections i.e. 35AA and 35AB introduced are manifestly
arbitrary; and (ii) that they suffer from absence of guidelines.
[Para 16][340-H; 341-A] E

2. 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 F
the RBI to carry out its functions under the Banking Regulation
Act, 1949, and are not different in quality from any of the Sections
which have already conferred such power. Thus, 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 G
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
H
310 SUPREME COURT REPORTS [2019] 6 S.C.R.

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.
[Para 16][342-C-F]
B
3. 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. Sections 14A, 17, 18, and
C 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
D 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. These and other regulatory sections such as Sections
25, 29, 30, and 31, all give guidance as to how the RBI is to
E exercise these powers under the newly added provisions.
Therefore, RBI rightly stated 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.
[Para 17][342-G-H; 347-H; 348-A-C]
F ULTRA VIRES
4. Section 35AA makes it clear that the Central Govern-
ment may, by order, authorise the RBI to issue directions to any
banking company or banking companies when it comes to initiat-
ing the insolvency resolution process under the provisions of
G 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 enumer-
ate the powers of the Central Government vis-a-vis the powers
of the RBI. [Para 29][360-D-E]
H
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 311
INDIA & ORS.

5. A conspectus of all these provisions ss.36AE, 36AF, A
45Y, 52, 53 and 55A shows that the Banking Regulation Act speci-
fies that the Central Government is either to exercise powers
along with the RBI or by itself. The role assigned, therefore, by
Section 35AA, when it comes to initiating the insolvency resolu-
tion process under the Insolvency Code, is thus, important.
B
Without authorisation of the Central Government, obviously, no
such directions can be issued. [Para 29][363-F-G]
6. 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 C
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. [Para 30][363-H; 364-A]
7. The matter can be looked at from a slightly different
angle. If a statute confers power to do a particular act and has D
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. Following this principle,
therefore, it is clear that the RBI can only direct banking institu-
tions to move under the Insolvency and Bankruptcy Code, 2016 E
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 nec-
essary implication, prohibits this power from being exercised in
any manner other than the manner set out in Section 35AA.
[Para 31][364-B-G; H; 365-A] F

8. 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. G
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. [Para 36][368-C-D]

H
312 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 9. The Press Note dated 05.05.2017, explained the new
Sections 35AA and 35AB as the grant of two distinct and 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
B
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
C 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
D
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
E read with Section 35AB. This also becomes clear 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
F
Insolvency Code provisions would then take over and have to
be followed. [Para 38][369-C-H; 370-A]
10 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
G 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 fact, RBI’s argument that the RBI can
issue directions to a banking company in respect of initiating
H
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 313
INDIA & ORS.

insolvency resolution process under the Insolvency Code under A
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.
[Para 40][371-B-C]
B
11. 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”. This is clear also from
the Press Note dated 05.05.2017, which introduced the Ordinance C
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 D
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, E
would be ultra vires Section 35AA. [Paras 41, 42][371-D-E;
372-F-H]
12. The impugned circular states as one of its sources, the
power contained in Section 45L of the Reserve Bank of India
Act, 1934 insofar as non-banking financial institutions are F
concerned. However, 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 G
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 H
314 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B
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
C 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. [Para 45]
[374-C; 376-E-H; 377-A]
Harishankar Bagla v. State of M.P. [1955] 1 SCR 380;
D Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Assistant
Commissioner of Sales Tax and Ors.; Senior Electric
Inspector v. Laxminarayan Chopra [1962] 3 SCR
146 ; State of U.P. v. Singhara Singh [1964] 4 SCR
485; Utkal Contractors & Joinery (P) Ltd. v. State of
Orissa (1987) 3 SCC 279 : [1987] 3 SCR 317;
E J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State
of U.P. [1961] 3 SCR 185 – relied on.
Indian Banks’ Association v. Devkala Consultancy
Service (2004) 11 SCC 1 : [2004] 1 Suppl. SCR 225
– held inapplicable
F
Manohar Lal Sharma v. Principal Secretary and Ors.
(2014) 9 SCC 516:[2014] 8 SCR 446; Independent
Power Producers Association of India v. Union of India
and Ors. (Writ - C No. 18170 of 2018 at the Allahabad
High Court); Swiss Ribbons Pvt. Ltd. and Anr. v. Union
G of India and Ors. 2019 (2) SCALE 5; Shayara Bano v.
Union of India (2017) 9 SCC 1: [2017] 7 SCR 797;
Central Bank of India v. Ravindra, (2002) 1 SCC 367:
[2001] 4 Suppl. SCR 323 ; Sudhir Shantilal Mehta v.
Central Bureau of Investigation (2009) 8 SCC 1:[2009]
H 12 SCR 682 ; ICICI Bank Ltd. v. APS Star Industries
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 315
INDIA & ORS.

Ltd. (2010) 10 SCC 1: [2010] 12 SCR 644; Bharat A
Sanchar Nigam Ltd. v. Telecom Regulatory Authority of
India and Ors. (2014) 3 SCC 222 : [2013] 12 SCR
999; Union of India and Anr. v. Pfizer Ltd. and Ors.
(2018) 2 SCC 39 : [2017] 12 SCR 179 ; Eera (through
Dr. Manjula Krippendorf) v. State (NCT of Delhi) and
B
Anr. (2017) 15 SCC 133 : [2017] 7 SCR 924 ; Arcelor
Mittal India (P) Ltd. v. Satish Kumar Gupta (2019) 2
SCC 1; Asian Resurfacing of Road Agency (P) Ltd. v.
Central Bureau of Investigation (2018) 16 SCC 299 :
[2018] 2 SCR 1045 ; Macquarie Bank Ltd. v. Shilpi
Cable Technologies Ltd. (2018) 2 SCC 674 ; State (NCT C
of Delhi) v. Brijesh Singh (2017) 10 SCC 779: [2017]
11 SCR 899; Commercial Tax Officer, Rajasthan v.
Binani Cements Ltd. and Anr., (2014) 8 SCC 319: [2014]
3 SCR 1; Maru Ram and Ors. v. Union of India and
Ors. (1981) 1 SCC 107:[1981] 1 SCR 1196
D
– referred to.
Royal College of Nursing of the United Kingdom v.
Department of Health and Social Security [1981] 1 All
ER 545 [HL] ; Comdel Commodities Ltd. v. Siporex
Trade S.A. [1990] 2 All ER 552 [HL] ; McCartan
Turkington Breen (A Firm) v. Times Newspapers Ltd., E
[2000] 4 All ER 913 ; Birmingham City Council v.
Oakley [2001] 1 All ER 385 [HL] ; Taylor v. Taylor,
[1875] 1 Ch. D. 426 – referred to.
Case Law Reference
F
[2014] 8 SCR 446 referred to Para 4
2019 (2) SCALE 5 referred to Para 10
[2017] 7 SCR 797 referred to Para 16
[1955] 1 SCR 380 relied on Para 17
G
[1962] 3 SCR 146 relied on Para 19
[2004] 1 Suppl. SCR 225 held inapplicable Para 25
[2001] 4 Suppl. SCR 323 referred to Para 27
[2009] 12 SCR 682 referred to Para 27 H
316 SUPREME COURT REPORTS [2019] 6 S.C.R.

A [2010] 12 SCR 644 referred to Para 27
[1875] 1 Ch. D. 426 referred to Para 31
(1964) 4 SCR 485 relied on Para 31
[1987] 3 SCR 317 relied on Para 33
B [2013] 12 SCR 999 referred to Para 35
[2017] 12 SCR 179 referred to Para 35
[2017] 7 SCR 924 referred to Para 37
(2019) 2 SCC 1 referred to Para 37
C
[2018] 2 SCR 1045 referred to Para 37
(2018) 2 SCC 674 referred to Para 37
[2017] 11 SCR 899 referred to Para 37
(1961) 3 SCR 185 relied on Para 39
D
[2014] 3 SCR 1 referred to Para 39
[1981] 1 SCR 1196 referred to Para 43

CIVIL ORIGINAL/APPELLATE JURISDICTION: Transferred
E
Case (Civil) No.66 of 2018 in Transfer Petition (Civil) No.1399 of 2018
Under Article 139A (1) of The Constitution of India.
WITH
W.P.(C) Nos. 339, 802, 1086, 1110, 1124, 1142, 1138, 1156, 1153,
F 1166, 1206, 1212, 1236, 1296 of 2018, SLP(C) No. 31421 of 2018, W.P.
(C) Nos. 1316, 1308 and 1359 of 2018 T.C.(C) No. 65 of 2018 in T.P.
(C) No. 1404 of 2018, W.P.(C) No. 1363, 1364, 1374 of 2018, T.C.(C)
No. 71 of 2018 in T.P. (C) No. 1283 of 2018 T.C.(C) No. 73 of 2018 in
T.P. (C) No. 1285 of 2018 T.C.(C) No. 72 of 2018 in T.P. (C) No. 1284
G of 2018, T.C.(C) No.75 of 2018 in T.P. (C) No. 1287 of 2018, T.C.(C)
No. 76 of 2018 in T.P. (C) No.1288 of 2018, T.C.(C) No. 74 of 2018 in
T.P. (C) No. 1286 of 2018, T.C.(C) No.70of 2018 in T.P. (C) No. 1403
of 2018, T.C.(C) No.69 of 2018 in T.P. (C) No. 1402 of 2018, T.C.(C)
No. 68 of 2018 in T.P. (C) No. 1401 of 2018, T.C.(C) No. 67 of 2018 in
T.P. (C) No. 1400/2018, W.P.(C) Nos. 1383, 1402, 1400, 1391, 1411,
H
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 317
INDIA & ORS.

1410, 1438 of 2018, W.P.(C) No. 22 of 2019, W.P.(C) No. 1502 of 2018, A
W.P.(C) No. 8, 9, 14, 36 50, 81, 117, 246 and 278 of 2019.
Attorney General for India, Tushar Mehta, SG, Vikramjit Banerjee
and Ms. Madhavi Diwan, ASGs, Navaniti Prasad Singh, Mukul Rohtagi,
K.V. Viswanathan, Rakesh Dwivedi, P.S. Narasimha, Sajjan Poovayya,
Dhruv Mehta, Arvind Datar, Sr. Advs., R. Balasubramanian, Rajat Nair, B
Kanu Agrawal, Rajeev Ranjan Ranvijay Singh, G.S. Makker, Shraddha
Deshmukh, Ms. Haripriya, Arvind Kumar Sharma, M.K. Maroria, Birjesh
Kumar Sinha, Hitesh Kumar Sharma, Meetali Patel, Jeewesh Prakash,
Shantanu Sagar, T. Mahipal, Pulkit Deora, Udit Gupta (for M/s Udit
Kishan and Associates), Arvind Kumar Gupta, Mrs. Purti Marawaha
Gupta, Mrs. Heena George, Mrs. V. S. Lakshmi, A. Venayagam Balan, C
Alok Dhir, Ms. Maneesha Dhir, Ms. Varsha Banerjee, Ashu Kansal,
Ms. Stuti Vats, T.V.S. Raghavendra Sreyas, Abhishek Singh, Ytharth
Kumar, J. Amal Anand, Ms. Aayushi Mishra, Vanshdeep Dalmia, Ms.
Shalini Kaul, Prasanna S., Aakarsh Kamra, Rajiv Shankar Dvivedi,
Sushant Sankar, Ms. Sweta Singh, Ms. Neha Mishra, Ms. Aarti Dwivedi, D
Mahesh K. Chaudhary, Ms. Kusum Lata, P.V. Dinesh, Ms. T.P. Sindhu,
Mukund P. Unny, Lakshman R.S., Bineesh K., M/s Indialaw, Hemant
Singh, Nishant Kumar, Lakshyajit Singh Bagdwal, Ambuj Dixit, Ms. Divya
Roy, Anil Kumar Sangal, Siddharth Sangal, Ms. Nilanjani Tandon, Amar
Gupta, Mayank Mishra, Ashish Joshi, Divyam Agarwal, Ms. Diksha Rai,
Ishan Bisht, Ms. Palak Mahajan, Dhananjay Bhaskar Ray, Ravi E
Raghunath, Mukunda Rao, Ms. Vrinda Bhandari, R. Venkatraman,
Ms. Praveena Gautam, Jitesh P. Gupta, Pawan Shukla, Raja Ram,
Ms. Liz Mathew, Rajendra Barot, Vivek Shetty, Jahan Chokshy, Ms.
Sansriti Pathak, Eklavya Dwivedi, Siddharth Iyer, Navneet R., Raghav
Mehrotra, Ananga Bhattacharyya, Rohit Rao N., Shourya Garg (for M/ F
s Veritas Legis), Dhruv Mohan, Ms. Astha Sharma, E.R. Kumar, Ms.
Sonal Gupta, Ishan Nagar, Raghav Bansal (for M/s Parekh & Co.),
Mrs. Garima Bajaj, Sudarsh Menon, Ms. Nimisha Menon, Vikram Hegde,
Chanchal Kumar Ganguli, Rahul Kumar, Ms. Hima Lawrence, Vishrov
Mukherjee, Pukhrambam Ramesh Kumar, Ms. Catherine Ayallore,
Priyardarshi Banerjee, Pratibhanu Singh Kharola, Ameya Vikram Mishra, G
Rajesh Kumar-I, Anant Gautam, Ms. Shruti Vats, Ms. Khushboo
Aggarwal, Debayan Banerjee, Anmol Mehta, Sanjay Kapur, Ms. Megha
Karnwal, Bharath Gangadharan, Ms. Shubhra Kapur, Vipin Kumar Jai,
Vipul Jai, Dushyant Parashar, Shailly Dinkar, Som Raj Choudhary,
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318 SUPREME COURT REPORTS [2019] 6 S.C.R.

A Prashant Kumar, Sovi Bipneet Singh, Ms. Vandana Sehgal, Iqram Govind
Singh, Pranaya Goyal, Aman Raj Gandhi, Abhishek Sharma, Yash Badkur,
Ritin Rai, Abhipsit Mishra, S.B. Arjun, Ms. Ishita Bist, Ms. Kritika
Bhardwaj, Ms. Meera Mathur, Vaijayant Paliwal, S.S. Shroff, Bishwajit
Dubey, Ms. Srideepa Bhattacharyya, Manpreet Lamba, Ms. Ruchi
Choudhury, Aman Singhania(for M/s Cyril Amarchand Mangaldas, O.P.
B
Gaggar, Aditya Gaggar, Milanka Chaudhury, Sarojanand Jha, Ashly
Cherian, Sanket Tiwari, Ms. Pragya Ohri, Abhirup Dasgupta, Ishaan
Duggal, Mohit D. Ram, Rajendra Beniwal, Rajesh P., Kaustubh Shukla,
Mrs. Lalita Kaushik, Nikhil Jain, Mahesh Agrawal, Sikhil Suri, Soumik
Ghosal, Himanshu Satija, Nishant Rao, Divyang Gobind Chandiramani,
C Sandeep Ladda, Gaurav Singh, Ms. Neeha Nagpal, Arshit Anand, Ajay
Bhargava, Ms. Shally Bhasin, Ms. Aastha Mehta, Rajesh Kumar, Milinka,
Nidhi Ram Sharma, Jay Zaveri, Rishi Agrawala, Sumesh Dhawan,
Vatsala Kak, Ms. Wamika Trehan, Ms. Maithli Mundra, E.C. Agrawala,
Ms. Suruchii Aggarwal, Ms. Usha Nandini V., Ms. Reetu Sharma, Alok
Shukla, Neeraj Shekhar, Satish Kumar, Amit Kumar Pathak, Shiv Kumar
D
Suri, Puneet Singh Bindra, Balaji Srinivasan, Abhishek Agarwal, Anand
Shankar Jha, M/s Dharmaprabhas Law Associates, Rajesh Singh, Ashish
Rana, Arun Aggarwal, Dr. Vinod Kumar Tewari, Brijesh Kumar Tamber,
Rabin Majumder, Mrs. Anil Katiyar, Gaurav Agrawal, Advs. for the
appearing parties.
E The Judgment of the Court was delivered by
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.
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:
“Resolution of Stressed Assets – Revised Framework
G
1. 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
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with a harmonised and simplified generic framework for resolution A
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
B
2. 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 Sub-categories Basis for classification –
Principal or interest payment or C
any other amount wholly or
partly overdue between
SMA-0 1-30 days
SMA-1 31-60 days
D
SMA-2 61-90 days
3. 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
E
of Information on Large Credits (CRILC) on all borrower entities
having 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, F
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.
1
Lenders under these guidelines would generally include all scheduled commercial
banks (excluding RRBs) and All India Financial Institutions, unless specified otherwise.
2
G
‘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.
3
Aggregate exposure under the guidelines would include all fund based and non-fund H
based exposure with the lenders.
320 SUPREME COURT REPORTS [2019] 6 S.C.R.

A B. Implementation of Resolution Plan
4. 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 “
B 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
C in any terms and conditions).
C. Implementation Conditions for RP
5. A RP in respect of borrower entities to whom the lenders
continue to have credit exposure, shall be deemed to be
D ‘implemented’ only if the following conditions are met:
a. the borrower entity is no longer in default with any of the
lenders;
b. if the resolution involves restructuring; then
i. all related documentation, including execution of necessary
E
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
F
of all the lenders and the borrower.
6. Additionally, RPs involving restructuring / change in ownership
in respect of ‘large’ accounts (i.e., accounts where the aggregate
4
Restructuring is an act in which a lender, for economic or legal reasons relating to the
G 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
H months.
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exposure of lenders is 1 billion and above), shall require A
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
B
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. C

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
D. Timelines for Large Accounts to be Referred under IBC
8. 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 E
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. F
ii. If in default after the reference date, then 180 days from the
date of first such default.
9. 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 G

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. H
322 SUPREME COURT REPORTS [2019] 6 S.C.R.

A Bankruptcy Code 2016 (IBC)7 within 15 days from the expiry of
the said timeline8.
xxx xxx xxx
12. For other accounts with aggregate exposure of the lenders
below 20 billion and, at or above 1 billion, the Reserve Bank
B 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

C V. Withdrawal of extant instructions
18. 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),
D Change in Ownership outside SDR, and Scheme for Sustainable
Structuring of Stressed Assets (S4A) stand withdrawn 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
E implemented, shall be governed by the revised framework.
19. 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.
20. The above guidelines are issued in exercise of powers
F
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.”
2. It will be noticed that the salient features of this circular are
G that restructuring in respect of borrower entities de hors the Insolvency

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.
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and Bankruptcy Code, 2016 [“Insolvency Code”] can only occur if A
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
B
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 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 C
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
D
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 E
and from 11.09.2018.
3. 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 F
Act, 2003 [“Electricity Act”] was enacted as a complete 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 G
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
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324 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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 / Non-performing Assets in the
B
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 policy changes, failure to fulfil
C 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.
4. Dr. Singhvi then went into non-availability of fuel and took us
D 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
E 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
F 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. 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
G 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
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exacerbated by delay in adjudication and consequent payment by A
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.
B
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 Parliamentary C
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, D
“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 E
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 F
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 G
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.”
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326 SUPREME COURT REPORTS [2019] 6 S.C.R.

A After due examination and enquiry, the 40th Parliamentary Standing
Committee Report of August 2018 has made the following
recommendations:
“(a) Appropriate, relevant, and sector-specific measures should
be explored to address the issues faced by power sector. Instead
B 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
C 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
D sector.
(e) The power sector should be protected since it is going through
a transition phase from a low-demand-low-supply situation to a
moderately-high-demand situation, which is temporary in nature.”
5. Dr. Singhvi then referred to a challenge that was made to the
E
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,
F
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
G 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 attention was specifically drawn to some observations
in Part-II of the report, which reads thus:

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“The Committee are of the considered view that providing A
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,
B
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 C
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 D
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 E
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.” F
6. 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 G
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
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328 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B 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
C 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.
D 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
E financial 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.”

F 7. 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
G Price (DEEP) portal following a transparent bidding process.
2. 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).
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3. NTPC can act as an aggregator of power, i.e., procure power A
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.
4. Ministry of Coal may earmark for power, at least 60 per cent B
of the e-auction coal, and this should be in addition to the regular
coal requirement of the power sector.
5. 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 C
of three months.
6. 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. D
7. Public Financial Institutions (PFIs) providing the Bill Discounting
facility may also be covered by the Tri-partite 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.
8. PPAs, Fuel Supply Agreements (FSA) and LTOA for E
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. F
9. 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 G
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
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330 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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 resolution process de hors the Insolvency
Code make the circular manifestly arbitrary and violative of Article 14
B
on this score as well.
8. 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
C 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
D 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
E part of one composite scheme. Section 35AA alone refers to, and can
alone be the source of power for directing banking and non-banking
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
F 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
G 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.
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9. Shri Mukul Rohatgi, Shri Sajan Poovayya, Shri K.V. A
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 the submissions of
Dr. Singhvi. These counsel have appeared in cases involving many other
B
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 C
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
D
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.
10. Shri Rakesh Dwivedi, learned Senior Advocate appearing on E
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 F
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, G
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
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A 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
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
B
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
C 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
D
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
E or by the Central Government. This is for the very good reason that
ultimately, it is in public interest to either resolve stressed 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
F
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
G 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
H circular of this kind can certainly be issued in public interest and in the
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 333
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interest of the national economy. Any restrictive reading of any of these A
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.
11. Shri Tushar Mehta, learned Solicitor General for India,
confined his submissions to the constitutional validity of Sections 35AA B
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 C
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 D
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 E
the Central Government is taking in order to bring back the power
sector on its feet.
12. 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 F
Code. This press release reads as follows:
“RBI identifies Accounts for Reference
by Banks under the Insolvency and Bankruptcy
Code (IBC)
G
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
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A 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).
2. An Internal Advisory Committee (IAC) was accordingly
constituted and it held its first meeting on June 12, 2017. The
B 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.
3. The IAC also arrived at an objective, non-discretionary criterion
C 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, 2016. The IAC noted that under the recommended criterion,
12 accounts totaling about 25 per cent of the current gross NPAs
D of the banking system would qualify for immediate reference under
IBC.
4. 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
E a viable resolution plan is not agreed upon within six months, banks
should be required to file for insolvency proceedings under the
IBC.
5. The Reserve Bank, based on the recommendations of the IAC,
will accordingly be issuing directions to banks to file for insolvency
F proceedings under the IBC in respect of the identified accounts.
Such cases will be accorded priority by the National Company
Law Tribunal (NCLT).
6. The details of the resolution framework in regard to the other
non-performing accounts will be released in the coming days.”
G
13. 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

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Repository of Information on Large Credits [“CRILC”] database. Of A
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 B
more than INR 5000 crore;
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 C
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.
14. The IAC subsequently met again and decided, on 25.08.2017, D
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 E
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 banks to attempt resolution of the accounts
in this Second List by 13.12.2017. As regards the residual accounts, out F
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 G
vide its circular dated 12.02.2018.
15. Meanwhile, the Ministry of Finance issued a notification dated
05.05.2017 under Section 35AA as follows:

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A “MINISTRY OF FINANCE
(Department of Financial Services)
ORDER
New Delhi, the 5th May, 2017
B S.O. 1435(E).¯In exercise of the powers conferred by Section
35AA of the Banking Regulation Act, 1949 (10 of 1949), the Cen-
tral Government hereby authorises the Reserve Bank of India to
issue such directions to any banking company or banking compa-
nies which may be considered necessary to initiate insolvency
C 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 Note
D 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
E
The promulgation of Banking Regulation (Amendment)
Ordinance, 2017 will lead to effective resolution of
stressed assets, particularly in consortium or multiple
banking arrangements.
F 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)
G 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

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resolution, and appoint or approve for appointment, authorities or A
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 B
to intervene in specific cases of resolution of non-performing
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 possibili- C
ties for time bound resolution of stressed assets. The SARFAESI
and Debt Recovery Acts have been amended to facilitate recov-
eries. A comprehensive approach is being adopted for effective
implementation of various schemes for timely resolution of stressed
assets.”
D
(emphasis supplied)

The Banking Regulation (Amendment) Ordinance, 2017 was then
enacted as follows:
E
“MINISTRY OF LAW AND JUSTICE
4th May, 2017
An Ordinance further to amend the Banking Regulation
Act, 1949.
WHEREAS the stressed assets in the banking system have F
reached unacceptably high levels and urgent measures are re-
quired 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, G
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;
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338 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B 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:
C 1. (1) This Ordinance may be called the Banking Regulation
(Amendment) Ordinance, 2017.
(2) It shall come into force at once.
2. In the Banking Regulation Act, 1949, after section 35A, the
D 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.
E
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,
F 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
G 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:
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“THE BANKING REGULATION A
(AMENDMENT) BILL, 2017
xxx xxx xxx
STATEMENT OF OBJECTS AND REASONS
Stressed assets in the banking system, or non-performing
B
assets have reached unacceptably high levels and hence, urgent
measures are required for their speedy resolution to improve the
financial health of 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 C
or banking companies to effectively use the provisions of the
Insolvency and Bankruptcy Code, 2016 for timely resolution of
stressed assets.
2. It was accordingly decided to make amendments to the Banking
Regulation Act, 1949. Since Parliament was not in session and D
immediate action was required to be taken, the Banking Regulation
(Amendment) Ordinance, 2017 was promulgated by the President
on the 4th May, 2017.
3. The Banking Regulation (Amendment) Bill, 2017 which seeks
to replace the Banking Regulation (Amendment) Ordinance, 2017, E
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 F
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 G
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.

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A 4. The Bill seeks to replace the said Ordinance.
xxx xxx xxx
14th July, 2017.”
(emphasis supplied)
Sections 35AA and 35AB were then legislatively introduced as
B follows:
“THE BANKING REGULATION
(AMENDMENT) ACT, 2017
[25th August, 2017]
xxx xxx xxx
C
2. 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
D 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
E
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.
F
(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’.
G xxx xxx xxx”
CONSTITUTIONAL VALIDITY
16. The petitioners have argued that the aforesaid Ordinance and
Amendment Act are unconstitutional on two grounds; (i) that the

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Sections introduced are manifestly arbitrary; and (ii) that they suffer A
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
B
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 C
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 D
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 E
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 legislation
on the ground of such legislation being manifestly arbitrary. This Court F
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 G
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

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A 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
B
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
C 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,
D 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, 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
E policy but may also give directions to banking companies either gener-
ally 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 com-
pany being conducted in a manner detrimental to the interest of the
F depositors or in a manner prejudicial to the interest of the banking com-
pany, or to secure the proper management of any banking company. It is
clear, therefore, that these provisions which give the RBI certain regula-
tory powers cannot be said to be manifestly arbitrary.
17. When it comes to lack of any guidelines by which the power
G given to the RBI is to be exercised, it is clear from a catena of judg-
ments 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:

H
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“9. The next contention of Mr. Umrigar that Section 3 of the A
Essential Supplies (Temporary Powers) Act, 1946, amounts to
delegation of legislative power outside the 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
B
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 C
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.
D
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 E
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
F
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.” G
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
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A 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
B
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
C 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
D
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
E by the representatives of the people. As observed on p. 224 of
Vol. I in Cooley’s Constitutional Limitations 8th 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 authority.
F 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
G 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
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“15. The Constitution, as observed by this Court in the case of A
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
B
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 C
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
D
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.” E
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 F
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 G
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”
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346 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B
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
C 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
D
Wanchoo, C.J., in Municipal Corporation of Delhi v. Birla
Mills.].
18. In Harishankar Bagla v. State of Madhya Pradesh [AIR
1954 SC 465 : (1955) 1 SCR 380 : 1954 Cri LJ 1322] this Court
dealt with the validity of clause 3 of the Cotton Textile (Control of
E 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
F 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.”
G
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
H form a subsidiary portion of the general law applicable to
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 347
INDIA & ORS. [R.F. NARIMAN, J.]

companies and are contained in Part XA of the Indian Companies A
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
B
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. C
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 time deposits,
during the war years. The enactment of a separate
D
comprehensive measure has in consequence now become im-
perative.”
(emphasis supplied)
In particular, the main features of the Bill are as follows:
“(i) A comprehensive definition of ‘banking’ so as to bring within E
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; F

(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 G
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 bank-
ing company. Thus, it is prohibited from having a floating charge on H
348 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B
as to how the banking company will run its business. 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
C these provisions. Consequently, the plea of constitutional validity fails.
ULTRA VIRES
18. Shri Dwivedi referred to and relied upon Sections 21, 35A,
35AA, and 35AB in order to sustain the validity of the impugned circu-
lar. Dr. Singhvi has argued that Section 35A cannot possibly be relied
D upon for the reason that it is an old provision, introduced in 1956. 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.
E 19. 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 expression “telegraph line” men-
F tioned 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:

G “…… 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

H
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fundamental rule of construction is the same whether the Court is A
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
B
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 C
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
D
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 contemporanea
expositio could be invoked in construing the word “telegraph line”
in the Act. E
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) F
(emphasis supplied)
20. Guidance on whether a statute can apply to new situations not
in contemplation of Parliament when the statute was enacted was felici-
tously set out by Lord Wilberforce in his dissenting judgment in Royal
College of Nursing of the United Kingdom v. Department of G
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

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350 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B
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
C 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 different in kind
D
or dimension from that for which the legislation was passed.”
(at pp. 564-565)
21. In Comdel Commodities Ltd. v. Siporex Trade S.A., [1990]
2 All ER 552 [HL], Lord Bridge put it thus:
E “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
F circumstances, there is no reason why it should not apply.”
(at p. 557)
22. 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
G 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
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traced back to the Law of Libel Amendment Act 1888. He A
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
B
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 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 C
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:
D
“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”. E
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 F
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 G
research into linguistic, cultural and political history, unless he
is specifically put on notice that the latter approach is required.”
(My emphasis.)

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352 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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 ordinary principles of construction the question
before the House must be considered in the light of the law of
B
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)
C 23. This exposition of the law is to be read along with the judg-
ment 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 ...
D prejudicial to health’, this does not mean a state which would
have been so regarded in 1846. It requires the application of mod-
ern 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]
E 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 con-
cept remains the same. The meaning of the statutory language
remains unaltered. So the concept of a vehicle has the same mean-
F ing 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
G unusual punishments’ (section 10). But changes in social
standards mean that punishments which would not have been re-
garded as cruel in 1688 will be so regarded today.
This doctrine does not however mean that one can construe
the language of an old statute to mean something conceptually
H
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INDIA & ORS. [R.F. NARIMAN, J.]

different from what the contemporary evidence shows that A
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
B
‘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 C
requiring a metalled surface instead of gravel) but would be using
the word ‘maintain’ to express a broader concept than Parlia-
ment 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
D
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 E
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 F
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 the 1990 Act a
sensible modern interpretation. But I do not think that it is either G
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

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354 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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.”
B (at pp. 396-397)
24. 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
C 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.
D
25. Dr. Singhvi then relied upon the judgment in Indian Banks’
Association (supra). In this case, the power of the RBI under Section
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:
E
“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
F 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.
G 38. 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
H
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INDIA & ORS. [R.F. NARIMAN, J.]

self-contradictory inasmuch as according to them the Reserve A
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
B
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 C
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 banks, far less on the borrowers. In any
event, by reason of a misplaced and misapplied construction of
statute, a third party cannot suffer.
D
41. 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 E
difficulty would be encountered while calculating the exact amount
of tax.
42. 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.” F
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 G
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.
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356 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 26. 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 gov-
ern them, namely, the RBI Act and the Banking Regulation Act. On this
B
score, therefore, Dr. Singhvi’s contention must fail.
27. Shri Dwivedi has cited certain judgments stating that discre-
tionary powers given to the RBI under the Banking Regulation Act gen-
erally, and under Section 35A, in particular, are broad and expansive,
and have been expansively expounded upon by this Court. He relied, in
C 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
D 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
E 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-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
F 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
G 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
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several States private moneylending has almost come to an end A
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
B
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 C
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
D
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 and wits of the borrowers. E
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
F
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 G
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
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358 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 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
B
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
C 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 excessive, usurious
or opposed to public policy.”
D Similarly, in Sudhir Shantilal Mehta v. Central Bureau of In-
vestigation, (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;
E 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.

F 52. Reserve Bank of India in terms of Section 21 of the 1949 Act
is empowered to control advances by banking companies and is-
sue 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
G force and, thus, can be termed as law in force. (See also Corpo-
ration Bank v. D.S. Gowda [(1994) 5 SCC 213] and Central
Bank of India v. Ravindra [(2002) 1 SCC 367].) All public sec-
tor banks are bound thereby.”

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Also, in ICICI Bank Ltd. v. APS Star Industries Ltd., (2010) A
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 B
in relation to advances to be followed by banking companies. It
further says that once 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 C
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 D
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 E
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 F
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 G
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

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A 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.”
B
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 di-
rections to banking companies in relation to matters of policy or admin-
istration affecting the public interest.
C
28. 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.
D
29. Section 35AA makes it clear that the Central Government
may, by order, authorise the RBI to issue directions to any banking com-
pany 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
E have no such power. There are many sections in the Banking Regula-
tion Act which enumerate the powers of the Central Government vis-à-
vis the powers of the RBI. Thus, Section 36ACA(1) provides as fol-
lows:
“36ACA. Supersession of Board of Directors in certain
F 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
G 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:

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Provided that the period of supersession of the Board of Directors A
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 super-
seding the board of directors of banking companies can only be exer- B
cised 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: C
“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 D
directions given to it in writing 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,—
E
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; F

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 G
this behalf by the Central Government (hereinafter referred to as
the appointed day):

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A 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,—
B (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.

C xxx xxx xxx”
Likewise, under Section 36AF, the Central Government may, af-
ter consulting the RBI, make a scheme for carrying out the purpose of
acquisition of such undertakings of banking companies. Section 36AF(1)
reads as follows:
D “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 pur-
poses of this Part in relation to any acquired bank.
xxx xxx xxx”
E 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
F 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
G different instruments paid by it.”
Under Section 52(1), the Central Government may, after consul-
tation 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
H Central Government may, after consultation with the Reserve
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 363
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Bank, make rules to provide for all matters for which provision is A
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”
Importantly, the Central Government may, on the recommenda- B
tion 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, C
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” D
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
E
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
F
of the Banking Laws (Amendment) Act, 1968.”
A conspectus of all these provisions shows that the Banking Regu-
lation Act specifies that the Central Government is either to exercise
powers along with the RBI or by itself. The role assigned, therefore, by
Section 35AA, when it comes to initiating the insolvency resolution pro-
cess under the Insolvency Code, is thus, important. Without authorisation G
of the Central Government, obviously, no such directions can be issued.
30. 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

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A 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.
31. The matter can be looked at from a slightly different angle. If
B 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:
C
“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 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
D 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 164. The power to record the confession had
E 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
F 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)

G 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

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specific defaults. The Section, therefore, by necessary implication, A
prohibits this power from being exercised in any manner other than the
manner set out in Section 35AA.
32. 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 could be B
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 C
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.”
D
33. 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 E
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 content of the Act F
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 G
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

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A 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
B
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
C 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
D
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
E 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 words should be
given a restrictive meaning.” [Halsbury 4th Edn., Vol. 44 p.
874]”
F This contention of Shri Dwivedi must, therefore, fail.
34. 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
G 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
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Bank at any time may, and on being directed so to do by the A
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” B
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 C
authorisation of the Central Government, the RBI has no power to issue
directions on its own, unlike Section 35. This argument also must,
therefore, fail.
35. Shri Dwivedi then argued that Section 35AB uses the words
“without prejudice” to indicate that the power granted under the said D
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 E
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 F
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 G
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
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A has to 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
B
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.
36. It is significant that the power to issue directions given by
C 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.
D
37. 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
E 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 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”
F 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.
G 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
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years ago in Heydon case [Heydon case, (1584) 3 Co Rep 7a : A
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 B
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].
38. The Press Note dated 05.05.2017, set out supra, explained
the new Sections 35AA and 35AB as the grant of two distinct and sepa- C
rate 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 Ordi-
nance. So is Section 35AB, except for a minor addition in sub-section D
(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 E
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. F
(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 from the fact that Section 35AB(2) enables G
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
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A Code provisions would then take over and have to be
followed.
39. 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
B 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
C 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
D 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 to specific provisions is not an arbitrary principle made
E 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
F 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
G 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
H US 255] and Carroll v. Greenwich Ins. Co. [199 US 401].”
DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 371
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This judgment has been followed in Commercial Tax Officer, A
Rajasthan v. Binani Cements Ltd. and Anr., (2014) 8 SCC 319 [at
paragraph 39].
40. 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 B
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 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, C
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.
41. Having grounded the power to issue directions to banking
companies so far as the Insolvency Code is concerned, in Section 35AA, D
what is important to note is that the Section enables the Central Govern-
ment to authorise the RBI to issue such directions in respect of “a de-
fault”. Default, in the explanation to Section 35AA, has the same mean-
ing assigned to it under Section 3(12) of the Insolvency Code. Section
3(12) of the Insolvency Code reads as under: E
“3. Definitions.—In this Code, unless the context otherwise
requires,—
xxx xxx xxx
(12) “default” means non-payment of debt when whole or any F
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”
“Debt” has been defined under Section 3(11) of the Insolvency G
Code as follows:
“3. Definitions.—In this Code, unless the context otherwise
requires,—
xxx xxx xxx
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A (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
B the Insolvency Code as follows:
“3. Definitions.—In this Code, unless the context otherwise
requires,—
xxx xxx xxx
C (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
D
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
E conspicuous by its absence in Section 35AA. This is another good
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.
42. This is clear also from the Press Note dated 05.05.2017, which
F 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
G 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.
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43. However, Shri Dwivedi argued that “specific cases” would A
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:
“Specific / adjective 1. clearly defined. 2. relating to particular
subject; peculiar. 3. exact; giving full details. 4. archaic (of medicine B
etc.) for a particular disease. noun 1. 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 C
defined thing; explicit <specific duties>. 2. Of, relating to, or
involving a particular named thing <specific item>. 3. Conformable
to special requirements <specific performance>. – specificity, n.
– specifically, adv.”
Shri Dwivedi referred to Maru Ram and Ors. v. Union of In- D
dia 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. E
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. F
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.”
G
A reading of paragraph 33 would show that the specific provision
to the contrary, referred to therein, would refer only to a particular
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.
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374 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 44. 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
B
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.
45. The impugned circular states as one of its sources, the power
C 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,—
D
xxx xxx xxx
(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:–
E (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;
F
(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 Hire-Purchase Act, 1972;
(iv) the carrying on of any class of insurance business;
G (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;

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DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 375
INDIA & ORS. [R.F. NARIMAN, J.]

(vi) collecting, for any purpose or under any scheme or A
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
B
other person,
but does not include any institution, which carries on as its principal
business,–
(a) agricultural operations; or
(aa) industrial activity; or C

Explanation.–For the purposes of this clause, ‘‘industrial
activity’’ means any activity specified in sub-clauses (i) to (xviii)
of clause (c) of section 2 of the Industrial Development Bank of
India Act, 1964;
D
(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
E
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 F
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 G
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;

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376 SUPREME COURT REPORTS [2019] 6 S.C.R.

A (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,
B 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 is provided and the
terms and conditions, including the rates of interest, on which it is
C 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
D 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
E 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
F 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
G 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
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DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF 377
INDIA & ORS. [R.F. NARIMAN, J.]

creditors under Section 7 of the Insolvency Code, only because of the A
operation of the impugned circular will be proceedings which, being
faulted at the very inception, are declared to be non-est.
46. 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 B
in the transferred cases and petitions. The transferred cases and petitions
are disposed of accordingly.

Ankit Gyan Tranferred Cases and Petitions disposed of.
C

D

E

F

G

H