No supporting documents for insolvency circular: RBI tells HC

No supporting documents for insolvency release: RBI tells HC

The Reserve Bank of India (RBI) on Friday told the Gujarat High Court (HC) that there was no supporting document to its June 13 press release, directing banks to initiate insolvency proceedings against 12 non-performing assets (NPAs), including Essar Steel.

The submission was made during the hearing of Essar Steel’s petition, filed on July 4, against insolvency proceedings initiated against it at the National Company Law Tribunal (NCLT) by the State Bank of India (SBI)-led 22 banks’ consortium as well as the Standard Chartered Bank (SCB).

The single-judge Bench of Gujarat HC has reserved its judgment for Monday. On Thursday, it had asked the RBI to present any documents other than the press release that supported its June 13 circular. The RBI counsel on Friday told the court that the press release was issued after a high-level committee meeting of the RBI decided to issue the directive.

Essar Steel, in its petition, has challenged the RBI’s directive as “arbitrary” and an impediment to its recovery process amid debt restructuring talks with banks.

Both the RBI and SBI counsels on Thursday had argued that Essar Steel had suppressed facts that it was taken by surprise by the RBI’s June 13 press release by not mentioning the same in its original petition. The SBI counsel submitted minutes of the June 22 joint lenders’ forum (JLF) meeting to support their arguments.

However, the Essar Steel counsel maintained that the company had not suppressed facts since its petition was directed at RBI’s directive and not against NCLT proceedings. The counsel countered the respondents’ arguments that Section 238 of Insolvency Bankruptcy Code (IBC), 2016, overrode other laws on insolvency and liquidation by maintaining that the RBI circular was subject to IBC 2016 and violated the company’s fundamental rights.

Essar Steel’s counsel also argued that in the June 13 and June 17 JLF meeting, the core committee had deliberated on Essar Steel’s debt restructuring proposal and sought clarification on over 25 points before finalising the proposal, which proved that the lenders had not considered insolvency as an option. The counsel argued that between December 2016 (since IBC came into play) and June 13 (when the RBI directive to banks was issued), the lenders had not considered the option of insolvency and, hence, Essar Steel was challenging the very directive of the RBI.

RBI had earlier told the court in one of the previous hearings that Essar Steel’s account had a bank exposure of ~45,655 crore, which is outstanding, of which till March 31, 2016, ~31,671 crore was non-performing assets. The same increased to ~32,864 crore by March 31, 2017.

Meanwhile, SCB argued that the London-based international lender was unnecessarily being dragged into the case even though it was not part of the JLF nor was its decision to initiate insolvency proceedings against Essar Steel based on RBI directive.