After Essar Steel, other promoters could move court against insolvency process
Essar Steel Ltd’s move to challenge the Reserve Bank of India (RBI) directive to banks to initiate bankruptcy proceedings against the company could slow down the resolution process, legal experts say.
Creditors are concerned that other promoters could follow the company’s example. It depends on what the Gujarat High Court, which Essar Steel approached on Tuesday, decides when it hears the case on Friday.
Essar Steel challenged the insolvency proceedings initiated against it at the National Company Law Tribunal (NCLT) by its creditors after being directed to do so by RBI. The central bank has recommended such proceedings against a total of 12 loan defaulters, who account for a quarter of the non-performing assets clogging up the Indian banking system.
The court posted the next hearing in the case for July 7, requesting the NCLT to adjourn any matter against Essar Steel listed before it until after that date.
Legal experts argue that while Essar Steel had not questioned the powers of the regulator, it had challenged the arbitrariness of the decision to identify the company for bankruptcy proceedings. “Any promoter or party can approach the high court against a statute if it compromises on rights of the company; even in this case it is on the so-called arbitrariness of the RBI directive. So far we haven’t heard anything about others looking at this course of action. Probably they would make an assessment after Gujarat HC rules in this case,” said a lawyer representing one of the lenders at NCLT. “Any proceedings at NCLT ‘ideally’ should not be impacted till the time there is an absolute stay granted by the high court. There is only an interim stay in the matter.”
Other legal experts, however, say that the NCLT will wait for the decision of the high court before proceeding against Essar Steel. “Whether other promoters could take such a route and approach writ jurisdiction would depend on companies. If one doesn’t object to the insolvency process, then they wouldn’t,” said Sitesh Mukherjee, a partner at the law firm Trilegal.