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Gujarat HC turns down Essar Steel plea against RBI's insolvency proceedings

Vinay Umarji & Abhijit Lele/Ahmedabad 18 Jul 17 | 09:30 AM

The Gujarat High Court on Monday disposed of Essar Steel’s petition against insolvency proceedings initiated by its lenders after a directive by the Reserve Bank of India (RBI).

This is likely to smoothen the insolvency proceedings against Essar as well as the 11 other non-performing accounts identified by the RBI. The four other steel companies on the list, however, have already said they would cooperate with lenders and not move court to stall proceedings.

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On July 4, Essar Steel, promoted by the Ruias, had filed a petition against the insolvency proceedings initiated against it at the National Company Law Tribunal (NCLT). Commenting on the court’s observations that the NCLT will have to decide on its own whether the insolvency petition is required to be entertained or not, Essar Steel stated in an official communiqué, “We respect the decision… (of the court) and will accordingly be raising these issues for consideration by the NCLT."

The Ahmedabad bench of the NCLT is likely to take up insolvency proceedings against Essar Steel, initiated by a consortium of 22 banks led by the State Bank of India as well as Standard Chartered Bank, on Tuesday.

The court asked the RBI to see to it that benefits of all its schemes were “equally offered and extended to all without discrimination".

On July 8, the central bank had to issue a corrigendum, deleting a line in its June 13 press release that said certain cases be accorded priority by the NCLT. 

The court also raised questions over the RBI’s functioning and jurisdiction. 

The central bank has already admitted that there were no supporting documents to its June 13 press release directing the lenders and the NCLT to accord priority to 12 large non-performing assets (NPAs).

The Gujarat HC said the RBI seemed to be under the impression that matters pertaining to the Company Law had been transferred to the NCLT by enacting the Insolvency and the Bankruptcy Code. However, no judicial or quasi-judicial authority could be guided or directed by government institutions like the RBI.

A senior public sector banker dealing with insolvency cases said the verdict was not a surprise as facts were clear. Banks have been focussing on resolution plans for the NCLT cases.  Essar had earlier claimed the RBI directive was “arbitrary" and impeded the recovery process amid discussions for debt restructuring with banks.

The court rejected the argument. According to the Standard Chartered Bank counsel, Essar Steel in its restructuring proposal had offered to start payment of dues only after 25 years and that too only with 1 per cent interest.  Earlier the RBI, the SBI and Standard Chartered Bank had claimed that Essar Steel had suppressed facts from the court about the company agreeing to insolvency proceedings against it as evident in the minutes of the Joint Lenders’ Forum (JLF) meeting held in June.  However, the court said the allegations were not material.According to the RBI’s arguments before the court earlier, Essar Steel’s account had an outstanding bank exposure of Rs 45,655 crore, Of this, Rs 31,671 crore had become non-performing by March 31, 2016. The same increased to Rs 32,864 crore by March 31 this year.

Sell-out road

The Gujarat HC ruling might help speed the insolvency process for Essar Steel and other non-performing accounts: 

June 13: RBI identifies 12 top NPAs for initiating insolvency proceedings by banks

June 27: Insolvency proceedings at NCLT initiated against Essar Steel

July 4: Essar Steel moves Gujarat HC; NCLT asked to defer insolvency proceedings. Court also asks RBI to explain what it means by “according priority"

July 5: Standard Chartered Bank, one of the lenders, appeals against the deferment of insolvency proceedings

July 7: RBI admits corrigendum to June 13 circular

July 12: Essar Steel falsely claimed about completion of restructuring process, RBI tells court

July 13: Essar Steel had agreed to insolvency proceedings, SBI tells court

July 17: Gujarat HC disposes of Essar Steel’s petition

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