The Supreme Court's order quashing the RBI's February 12 circular will give the government discretionary power to issue a direction to the apex bank for referring a defaulting company to the NCLT on a case by case basis in public interest, official sources said.

The Supreme Court on Tuesday quashed the RBI circular of last year that pertains to the provisions for referring the defaulter to the National Company Law Tribunal (NCLT) even on a one-day overdue.

However, the SC had upheld the constitutional validity of Section 35AA of the Banking Regulation Act, which empowers the Centre to act, either directly or by directing RBI to take action against defaulters.

Section 35AA empowers the central government to authorise the RBI 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 IBC.

Sections 35AA and 35AB were introduced by an amendment to the Banking Regulation Act in May 2017. #casansaar (Source - PTI, Business Standard)