Context:
The Reserve Bank of India said it has filed an application with the National Company Law Tribunal, New Delhi bench, for initiation of corporate insolvency resolution process against Aviom India Housing Finance Private Limited.
Reason?
- RBI superseded the board of Aviom India Housing Finance due to concerns regarding governance and payment defaults, appointing a former bank official as the administrator.
Regulatory Actions Taken
- Formation of Three Member Advisory Committee to assist the Administrator in discharge of his duties.
Legal Framework Insolvency Process
- Insolvency Bankruptcy Rules 2019 allow RBI to appoint an advisory committee.
- The committee assists the administrator in managing the company during the insolvency process.
Superintendence and Control of RBI
RBI is empowered to supersede the board of directors of a financial institution, such as Aviom India Housing Finance, in case there are “significant governance concerns” and “defaults in meeting various payment obligations,” which effectively puts the RBI in control of the company on grounds of bad practices of management and failure to honour financial commitments, which is followed by the appointment of an administrator to run the company under RBI supervision.
The RBI has powers under relevant acts to supersede the boards of financial institutions in case serious governance issues and payment defaults are found.
- Supersession of board
- In extreme cases, RBI can supersede an existing board of directors and put an administrator. Administrator’s role:
- The administrator is also required to take steps to redress the governance issues and reverse the payment defaults and even trigger debt restructuring or initiate insolvency proceedings, if necessary.
The Corporate Insolvency Resolution Process (CIRP)
The Corporate Insolvency Resolution Process (CIRP) is a process in India that helps resolve or liquidate a corporate debtor. The Insolvency and Bankruptcy Code (IBC) of 2016 governs the CIRP.
Implications
- Signals tightening regulatory oversight over financial service providers.
- Highlights RBIs strict approach toward governance failures in housing finance companies.
- May affect lender confidence in smaller housing finance firms thereby increasing scrutiny in the sector.
Source: The Hindu
