1. Legal Framework in India

A. RBI Act, 1934 - The Source of Power

• Section 17: Allows RBI to make loans and advances to banks against eligible securities - routine LAF, MSF, Repo.
• Section 18: The Emergency Power. Empowers RBI to extend on-demand or 90-day loans to "any person", not just banks, without collateral, on such terms as it deems sufficient. This is the statutory backbone of ELA in India.
• The RBI's LOLR / ELA function is primarily intended to deal with systemic crises and is provided under exceptional circumstances for regulating credit in interests of Indian trade, commerce, industry and agriculture.

B. Banking Regulation Act, 1949
Section 45 - RBI can impose moratorium and prepare reconstruction / amalgamation scheme which includes ELS.

C. Insolvency and Bankruptcy Code, 2016
Emergency liquidity in corporate context is Interim Finance / Resolution Process Costs under Section 5(15) and Section 30(2). It gets super-priority over all other claims. This is the corporate equivalent of ELA.

D. Walter Bagehot Doctrine - Applied by Courts
Since 1860s, principles are: Lend freely, at penal rate, against good collateral, to solvent entities. Indian courts have repeatedly upheld this.

2. Essential Conditions for ELS

1. Solvency, not Insolvency: RBI provides emergency liquidity assistance to SOLVENT banks facing temporary liquidity issues
2. Systemic Importance: Failure will cause contagion
3. No Alternative: Market funding exhausted
4. Collateral & Penal Rate: Usually 100-200 bps above repo
5. Conditionality: Management change, moratorium, reconstruction plan

3. Types of Emergency Liquidity in India

1. Special Liquidity Facility (SLF): Direct RBI line. Example: Yes Bank INR 60,000 Crore.
2. Orchestrated Liquidity: RBI directs PSBs to provide liquidity support rather than directly intervening as LoLR. Seen in IndusInd Bank 2024-25 case.
3. Emergency Credit Line Guarantee Scheme (ECLGS): Govt guarantee of 100% to banks for additional credit during COVID.
4. Market-wide: LTRO, TLTRO, Moratorium, CRR cuts.

4. Landmark Case Laws

CASE 1: Yes Bank Ltd. Restructuring, 2020 - The Biggest ELA in India

Facts: Yes Bank faced bank run after NPA crisis (AT1 bonds, Rana Kapoor case). Depositors queued.
RBI Action:

• Imposed moratorium under Section 45 of BR Act on 5th March 2020.
• Provided INR 600 billion special liquidity facility to Yes Bank to meet needs of depositors.
• Announced injection of INR 100 billion equity from SBI and other banks.

Legal Ratio: Supreme Court and Bombay HC upheld RBI's reconstruction scheme in T. T. P. Bank Ltd. vs. RBI. Court held RBI's ELA power is discretionary and for systemic protection, not bank bailout. Bail-in of AT-1 bonds was held valid as part of emergency sourcing.

CASE 2: Gajendra Sharma vs Union of India & Anr. (2020 INSC 662) - COVID Moratorium Case

Citation: W.P. (C) 2020 Supreme Court 3-judge bench - Justice Ashok Bhushan.
Facts: Petitioner challenged RBI circular dated 27.03.2020 allowing 3-month moratorium but charging interest on interest.
Judgment: Supreme Court directed RBI to ensure implementation of moratorium in letter and spirit and refused to direct full waiver of interest. It upheld that financial relief is executive policy, not judicial. However, Govt later gave waiver of interest on interest up to Rs.2 crores.
Principle for ELS: Court cannot pass directions for financial relief - ELA is policy discretion of RBI/Govt. This defines judicial limits.

CASE 3: IndusInd Bank Liquidity Episode (2024-25) - Who is Real LoLR?

Facts: IndusInd had derivative accounting discrepancies. RBI, instead of direct lending under Sec 18, orchestrated liquidity support through state-owned banks.
Analysis reported in LiveMint: "RBI's decision to rely on public sector banks (PSBs) to provide liquidity support, rather than directly intervening as lender of last resort (LoLR), merits close examination".
Legal Insight: Court observed RBI has broad authority to lend to distressed banks but can choose indirect route to avoid moral hazard. This case will be cited for constructive ELS.

CASE 4: State of Kerala vs Union of India (2024) - Sovereign Liquidity

Facts: Kerala sought extra borrowing of Rs.10,722 crores claiming financial emergency.
Supreme Court held: "Financial difficulties caused by a state's poor financial management can't be a basis for seeking immediate help". Rejected plea.
Ratio for ELS: Emergency liquidity cannot be claimed as a right if crisis is self-created. Solvency and fiscal discipline are pre-conditions.

CASE 5: PMC Bank & Lakshmi Vilas Bank (LVB) Cases

PMC (2019): RBI refused ELA because bank was insolvent, not just illiquid - imposed moratorium and then merged with Unity Small Finance Bank. Distinction between illiquidity vs insolvency upheld by Bombay HC.
LVB (2020): RBI's draft scheme amalgamating LVB with DBS Bank India included write-down of shares and bonds - upheld. Shows ELA can include equity sourcing.

5. When ELS Can Be Challenged

You can challenge in Writ under Article 226/32 if:

• RBI refuses ELA discriminatorily (Violation of Article 14)
• ELA conditions violate Section 45-IA of RBI Act (Delhi HC W.P.(C) 10690/2021)
• Moratorium implementation not in letter and spirit

Courts generally apply Wednesbury principle - won't substitute RBI's commercial wisdom.

Practical Checklist for Sourcing Emergency Liquidity Today:

1. For Banks/NBFCs: Invoke Sec 18 application to RBI Regional Office with collateral schedule + solvency certificate + board resolution
2. For Corporates under IBC: File I.A. for Interim Finance under Reg 36A, with 60% CoC approval
3. For COVID-type ECLGS: Apply through member lending institution with G guarantee