Gujarat High Court dismisses Essar Steel's plea challenging RBI order on bankruptcy

by Antonio Miles July 17, 2017, 20:36
Gujarat High Court dismisses Essar Steel's plea challenging RBI order on bankruptcy

Gujarat High Court has dismissed Essar Steel India Ltd's appeal seeking a stay on insolvency proceedings initiated by debtor banks at the National Company Law Tribunal (NCLT), saying the Reserve Bank's list of companies with high non-performing loans discriminated against the company.

Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) initiated proceeding in the National Company Law Tribunal (NCLT) under the newly-formed Insolvency and Bankruptcy Code.

Reserve Bank of India (RBI) had picked up 12 companies for the immediate resolution of Non-performing asset (NPAs) under the Insolvency and Bankruptcy Code (IBC).

Essar Steel had moved court against the June 13 RBI circular contending that the order was improper as the firm was in an advanced stage of loan restructuring.

However, the Court observed that it can not be held that RBI's directions are in the nature of classification or such classification is irrational, unjust, arbitrary or discriminatory.

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Earlier this year, the RBI had identified top 12 NPA accounts, including of Essar Steel, for bankruptcy proceedings. "It can not be held that directives of RBI under reference by impugned press release are binding upon SCB and therefore SCB is bound to consider the restructuring proposal by the petitioner, wherein petitioner has offered to start payment of dues only after 25 years and that too only with 1% interest". They were also aware that lenders will file for insolvency proceedings. Bad loans at state-run banks have increased by more than Rs 1 lakh crore since April 2016 to Rs 6 lakh crore as of December 31. 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.

Essar Steel also said that whereas other companies had shut shop, Essar Steel was still functional with an annual turnover of Rs 20,000 crore.

The statement added that as per Monday's order, the NCLT needed to decide, "based upon factual details that whether the insolvency petition is required to be entertained as such or not".

Reacting to the judgement, Essar Steel said the High Court while disposing of the petition has indicated that all issues referred by the company to the court should be considered by the NCLT before taking any decision on merits. At the time, lenders were already discussing a restructuring plan approved by the company's board, it said. Standard Chartered Bank had also moved the NCLT against Esaar.

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