Supreme Court Allows Withdrawal of SLP in RBI Circular Dispute Involving Jayaswal Neco Industries

The Supreme Court of India, in the case of Jayaswal Neco Industries Limited & Another v. Reserve Bank of India & Others, delivered an important ruling on May 4, 2022, allowing the withdrawal of Special Leave Petitions (SLPs) challenging certain Reserve Bank of India (RBI) circulars. The Court, while permitting withdrawal, imposed costs and clarified that it had not endorsed the actions taken during the period of litigation.

Background of the Case

The dispute arose from three RBI circulars issued on September 29, 2017, November 30, 2017, and December 7, 2017. These circulars were challenged before the Bombay High Court by Jayaswal Neco Industries Limited, which argued that they were arbitrary and adversely affected their financial restructuring.

On March 5, 2018, the Bombay High Court dismissed the writ petition filed by the petitioners, leading them to approach the Supreme Court through Special Leave Petitions. On April 16, 2018, the Supreme Court issued a notice and granted an interim order directing the parties to maintain the status quo.

During the pendency of the case, a significant change occurred. Eleven out of the twelve lenders of the petitioners assigned their debts to Assets Care & Reconstruction Enterprise Ltd. (ACRE), while the twelfth lender entered into a One-Time Settlement (OTS) with the petitioners. As a result, ACRE became the sole financial creditor of the petitioners.

A subsequent agreement between ACRE and the petitioners led to ACRE withdrawing the Insolvency and Bankruptcy Code (IBC) proceedings against the petitioners, while the petitioners agreed to withdraw the SLPs before the Supreme Court.

Key Legal Issues

Whether the petitioners should be permitted to withdraw the SLPs after obtaining an interim relief of status quo.
Whether the Supreme Court should investigate the financial arrangements made by the petitioners and lenders during the litigation period.
Whether the withdrawal of the SLPs would impact the legality of the challenged RBI circulars.

Arguments by the Reserve Bank of India

The RBI, opposing the withdrawal, made the following key arguments:

The petitioners had taken advantage of the interim relief granted by the Supreme Court to enter into financial arrangements with lenders behind the RBI’s back.
Allowing withdrawal of the SLPs would prevent judicial scrutiny of the legitimacy of these transactions.
The Court should either hear the matter on merits or restore the status quo as it existed before the SLPs were filed.
The petitioners should not be allowed to benefit from an interim order while avoiding judicial determination of the dispute.

Arguments by the Petitioners (Jayaswal Neco Industries Limited)

The petitioners, represented by their counsel, countered:

Their financial obligations had been restructured through legitimate commercial transactions.
The settlement between ACRE and the petitioners resolved the issues underlying the SLPs, rendering further litigation unnecessary.
They were willing to withdraw the case unconditionally and bear the costs imposed by the Court.
Their agreement with ACRE was not contingent on the Supreme Court’s ruling, but rather a result of negotiations between creditors and the borrower.

Supreme Court’s Observations

The Supreme Court acknowledged the RBI’s concerns but ultimately permitted the withdrawal of the SLPs. The Court noted:

“Though we see force in the submissions advanced by the RBI, we allow the applications seeking permission to withdraw the Special Leave Petitions, mainly because out of eleven lenders, who assigned the debts to ACRE, nine lenders are Public Sector Financial Corporations/Banks.”

The Court reasoned that refusing withdrawal could lead to complications in financial settlements, particularly requiring public sector banks to refund large sums of money.

However, the Court also clarified:

“We make it clear that we have neither affirmed nor given any seal of imprimatur insofar as the events which have happened after the order of status-quo granted by this Court.”

This statement ensured that the withdrawal did not constitute an endorsement of the financial restructuring conducted during the litigation period.

Final Judgment

The Supreme Court ruled as follows:

The petitioners’ request to withdraw the SLPs was allowed.
The withdrawal was subject to the petitioners depositing Rs. 10,00,000 (Rupees Ten Lakhs) as costs with the Supreme Court Middle Income Group Legal Aid Society within two weeks.
The Special Leave Petitions were dismissed as withdrawn after the deposit.
The Court did not examine the legality of the financial transactions that took place during the litigation period.

Key Takeaways from the Judgment

The Supreme Court reaffirmed that interim relief granted in litigation cannot be misused to manipulate financial arrangements.
Withdrawal of a case does not imply judicial approval of actions taken during the litigation period.
Commercial disputes involving regulatory bodies require careful judicial scrutiny to prevent circumvention of legal processes.
The ruling highlights the Court’s commitment to procedural fairness while balancing financial realities.

Conclusion

The Supreme Court’s decision in Jayaswal Neco Industries Limited v. Reserve Bank of India underscores the complexities involved in financial litigation. While the Court permitted the withdrawal of the SLPs, it also emphasized that it was not endorsing the actions taken by the petitioners during the litigation period.

This ruling serves as a cautionary precedent for businesses and financial institutions engaged in litigation, reinforcing the principle that judicial oversight cannot be circumvented through strategic settlements. At the same time, it ensures that practical commercial considerations, such as settlements with public sector banks, are not unduly disrupted by continued litigation.

Petitioner Name: Jayaswal Neco Industries Limited & Another.
Respondent Name: Reserve Bank of India & Others.
Judgment By: Justice Uday Umesh Lalit, Justice S. Ravindra Bhat.
Place Of Incident: India.
Judgment Date: 04-05-2022.

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