NCLT admits insolvency plea against Essar Steel
The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has admitted the insolvency petition against Essar Steel filed by lenders SBI and StanChart. The NCLT rejected Essar Steel’s plea to not initiate proceedings against it under the Insolvency and Bankruptcy Code.
The Ahmedabad bench of the National Company Law Tribunal (NCLT) has admitted the insolvency petition against Essar Steel filed by lenders State Bank of India (SBI) and Standard Chartered Bank (StanChart).
It rejected Essar Steel’s plea to not initiate proceedings against it under the Insolvency and Bankruptcy Code (IBC). Essar had argued a debt restructuring plan was underway with the lenders.
The bench, chaired by Bikki Raveendra Babu, appointed SBI’s choice of Satish Kumar Gupta as the insolvency resolution professional (IRP). Gupta is with the Indian arm of Alvarez and Marsal, a global professional services entity, noted for work in turnaround management. London-based StanChart had sought appointment of consultancy EY’s partner, Dinkar Venkatasubramanian, as the IRP. Essar’s counsels wouldn’t say if Wednesday's order would be challenged at the National Company Law Appellate Tribunal.
StanChart and SBI had independently filed applications for initiating insolvency proceedings, for dues of ~34,000 crore. Earlier, Essar Steel had challenged these proceedings at the high court here, which dismissed the company's petition.
The SBI-led consortium forms 93 per cent of the total of ~45,000-crore owed by Essar Steel, of which ~32,864 crore had been declared bad as on end-March 2017. The company had also defaulted on an earlier guarantee for a StanChart loan to its Mauritius-based subsidiary, Essar Steel Offshore, worth ~3,700 crore.
Essar Steel is one of 12 corporate debtor companies the Reserve Bank of India (RBI) had named (on June 13) as large defaulters, based on the criteria of at least ~5,000 crore in debt exposure, of which 60 per cent has been termed bad by lenders. RBI had instructed the lenders to petition for initiating of insolvency proceedings.
Essar Steel’s plea, rejected in Wednesday’s order, was also based on the ground that its operations would be affected by insolvency proceedings. It had, by its petition, crude steel making capacity of 10 million tonnes a year, for which it has several long-term contracts with central and state entities for supply of raw materials and critical production consumables.
At 80 per cent production capacity, Essar Steel said it expected a turnover of at least ~25,000 crore for 2017-18.
On July 26, with the conclusion of arguments by SBI and StanChart, the NCLT bench had reserved its verdict. Earlier, in an 83-page order, judge S G Shah of the high court had ordered that no relief would be granted to Essar Steel in the latter's petition to quash proceedings initiated against it by the SBI-led consortium and StanChart.
Essar had filed for relief from the high court on July 4. At the hearing there, RBI’s counsel had countered Essar's argument that the ~5,000 crore of debt criterion was arbitrary. He said the central bank had adopted “scientific criteria” to select the 12 large non-performing accounts, which formed about a fourth of the ~1.28 lakh crore worth of such accounts in the banking system.
Now, with NCLT's decision, Essar Steel's board of directors would be dissolved. The IRP gets 180 days to come up with a workable solution for repayment, extendable by another 90 days. If this fails, a liquidator would be appointed. The solution proposed would have to be approved by the committee of creditors by a 75 per cent majority, and then filed with NCLT.