Guj HC junks Essar Steel plea against RBI's insolvency order

Gujarat HC raps RBI for giving directions to NCLT

The Gujarat High Court on Monday dismissed Essar Steel India Ltd's appeal against a central bank order that asked creditor banks to start insolvency proceedings against the steelmaker, lawyers on the case said.

Essar Steel in its petition to the court had challenged a June 13 directive of RBI, in the form of a press release, in which the banking regulator directed banks to refer a dozen cases, including Essar Steel, directly to NCLT.

Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) and initiated proceedings in the NCLT under the newly-formed IBC.

Essar Steel had moved the high court challenging the RBI's June 13 circular asking the banks to initiate action against the company and eleven other accounts (companies) with over Rs 5,000 crore of outstanding loans each under the Insolvency and Bankruptcy Code (IBC).

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The court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea. However, Essar continued to raise objection on being clubbed with other 11 NPA accounts, whereas it was in discussion with banks for a financial restructuring.

Essar Steel owes lenders around Rs 45,000 crore ($6.99 billion), of which Rs 31,670 crore had become non-performing as of 31 March 2016, the Mint newspaper previously reported citing court hearings. Standard Chartered Bank had also moved the NCLT against Esaar.

The steel company's debt has increased to over Rs 42,000 crore. They will take a decision in a day or to as time is a critical factor in this. Essar Steel argued that it was not given adequate opportunity to present its position before the insolvency case was filed at the NCLT. Instantly acknowledging this error, the RBI told the Gujarat High Court that it would withdraw this line from the press release, and did so by the means of a corrigendum.

Though the Insolvency and Bankruptcy Code is in force since December 2016, the lender banks did not opt for insolvency proceedings because they knew it would "jeopardise company's operations" as suppliers may stop supplying material on learning about such action, Thakore said. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs. 7,50,000 crore, which forms 5 per cent of the country's GDP.

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