This week in Indian law: The Supreme Court ruled that Governors cannot indefinitely withhold assent to bills passed by state legislatures. The RBI increased risk weights on consumer credit and NBFC exposure by 25 percentage points in a major macroprudential action. The SC upheld personal guarantor insolvency provisions under IBC in Dilip Jiwrajka. 6 significant legal developments this week across constitutional rights, regulatory updates, and insolvency law.
Top story
SC Rules Governors Cannot Indefinitely Withhold Assent to State Bills
Category: constitutional-rights | Date: 10 November 2023 | Source: Supreme Court of India
The Supreme Court held that Governors cannot indefinitely delay or withhold assent to bills passed by state legislatures. The judgment addressed the growing friction between several state governments and their Governors over pending legislation. The Court observed that the Governor's role in the legislative process is largely ceremonial and that indefinite withholding of assent frustrates the will of the elected legislature and the people.
Why it matters: This ruling has immediate implications for Centre-state dynamics, particularly in states governed by Opposition parties where Governors (appointed by the Centre) have been accused of blocking legislation. Punjab, Kerala, and Tamil Nadu were among the states affected by delayed Governor assent. The judgment establishes a constitutional norm that Governors must act within a reasonable time on bills received from state legislatures. Constitutional law practitioners should note the Court's articulation of the Governor's limited discretion in the assent process.
Read more: Veritect analysis
Regulatory updates
RBI Hikes Risk Weights on Consumer Credit and NBFC Lending by 25%
Regulator: RBI | Date: 16 November 2023 | Source: RBI
The Reserve Bank of India increased risk weights on consumer credit exposure (excluding housing loans, education loans, and vehicle loans), credit card receivables, and bank lending to NBFCs by 25 percentage points. The macroprudential measure was aimed at tempering the rapid growth in unsecured consumer lending and managing the concentration risk from bank exposure to the NBFC sector. The circular had immediate market impact, with banking and NBFC stocks declining sharply.
Key point: The 25 percentage point risk weight increase directly affects capital adequacy ratios for banks and NBFCs with significant consumer lending portfolios. Institutions must either raise additional capital or constrain lending growth in the affected segments. This is the most significant macroprudential intervention since the 2019 NBFC liquidity crisis measures.
Court judgments
SC Upholds Personal Guarantor Insolvency Under IBC
Court: Supreme Court of India | Date: 9 November 2023
The Supreme Court in Dilip B. Jiwrajka v. Union of India upheld the constitutionality of the provisions enabling insolvency proceedings against personal guarantors under Part III of the Insolvency and Bankruptcy Code. The judgment validated the IBBI's framework for proceeding against personal guarantors of corporate debtors, rejecting challenges based on discrimination and procedural fairness grounds.
Key point: The Dilip Jiwrajka judgment removes the last significant constitutional challenge to the personal guarantor insolvency framework. Banks and financial institutions can now pursue insolvency proceedings against personal guarantors with greater certainty, significantly strengthening the credit recovery ecosystem.
Also this week
- SEBI compliance circular expected — SEBI was expected to issue a compliance circular for market intermediaries regarding folio-level data maintenance and investor grievance redressal.
- Paytm Payments Bank under scrutiny — Reports indicated growing RBI concern about compliance deficiencies at Paytm Payments Bank, foreshadowing the January 2024 regulatory action.
- Winter Session preparations — Parliament Winter Session preparations continued, with criminal law reform bills (BNS, BNSS, BSA) expected to be the centrepiece of the legislative agenda.
By the numbers
- 25 — Percentage points by which risk weights were increased on consumer credit, credit cards, and NBFC exposure
- 3 — States most directly affected by the Governor assent ruling: Punjab, Kerala, Tamil Nadu
- Rs 3+ lakh crore — Estimated impact on bank capital requirements from the risk weight increase
Looking ahead
- November 15-17: SEBI intermediary compliance and PhonePe trademark matters expected
- November 22: IBC statistics review and Paytm Payments Bank developments
- November 29: SC Tamil Nadu Governor bills matter listed
- December 4: Parliament Winter Session to commence
This is the Veritect Weekly Legal Roundup for Week 45 of 2023. For daily updates, visit our legal news page. Subscribe to receive this roundup every Monday morning.
Veritect provides this content for informational purposes and does not constitute legal advice.