Out of the many relatable characters that appear in the pages of Charles Dickens’ writing, Mr. Micawber from David Copperfield has to be one of the most perfectly rendered. Micawber is desperately poor, but you wouldn’t know it if you encountered him in the street, spouting distilled wisdom and bearing his straitened circumstances with irrational optimism (“something will turn up”). As it happens, Mr. Micawber’s creditors don’t share his buoyancy, and he is eventually incarcerated in debtors’ prison.
Since the time the government opened up the sector for investment, the story of India’s private power producers has resembled that of Mr. Micawber – and they are about to be put into a modern day version of debtors’ prison, after the Allahabad High Court refused to spare them the ignominy of IBC proceedings.
A mix of government apathy, overregulation, adverse global headwinds and judicial activism by the Supreme Court has brought power generating companies to their knees, racking up breathtaking loan defaults and clogging up two sectors in their wake – the power sector and the financial sector.
The fight before the Allahabad High Court can be viewed as a battle between the power sector represented by the power companies, and the financial sector, in the form of the RBI.
The bone of contention was a 12th February 2018 circular issued by the RBI under the RBI Act, that makes it mandatory for banks to resolve NPAs of over Rs. 2,000 crores within 180 days, and file insolvency proceedings under the IBC if the timeline is not met.
The power companies sought an easing of this circular in their case, due to what they saw as the unique hurdles that had led them to stumble micawberishly into their loan defaults: a break in their access to coal caused by the Supreme Court’s sweeping 2014 order cancelling 204 coal block allocations, Coal India Limited’s strangulating monopoly over coal, woeful under-recoveries from discoms, and sluggish demand.
The RBI, on the other hand, defended the circular by pointing to the outrageous NPA crisis in the banking system. Its lawyers informed the Court that total NPAs stand at about Rs. 11,00,000 crores, of which power sector NPAs alone make up for around Rs. 2,50,000 crores. These NPAs have been growing with each passing year, and are cancerous for the economy. Further, it was argued, the Insolvency and Bankruptcy Code doesn’t always kill the company; it often resolves insolvencies, only stripping away control of the company from its owners.
It was always going to be a tough one for the power producers. Despite the tendency of Indian courts to intervene in matters that are traditionally outside the domain of the judiciary, they have generally kept a respectful distance from economic legislation.
And so it turned out: the Court refused to grant any interim relief, citing the deferential treatment that courts give to RBI’s antidotes for economic crises.
Just like their shabby clothed, top-hatted literary equivalent, the power producers have been left staring at a long spell of misery. They will need a lot of Mr. Micawber’s sunny optimism to get past these gloomy times.
