Gujarat HC clears insolvency action against Essar Steel
AHMEDABAD: The Gujarat High Court on Monday cleared the decks for the Reserve Bank of India (RBI) to press ahead with the bad-loan resolution process, dismissing Essar Steel Ltd’s petition challenging the initiation of bankruptcy proceedings against the company. The ruling throws judicial weight behind RB I’ s June directive asking lenders to initiate action against the steel maker and 11 other companies that account for a quarter of the ₹10 lakh crore of stressed assets clogging up the banking system.
The ruling is likely to deter companies, which are contemplating similar legal challenges.
The ruling means Essar Steel creditors such as State Bank of India (SBI) and Standard Chartered Bank can proceed against the company in the National Company Law Tribunal under the Insolvency and Bankruptcy Code (IBC).
Justice SG Shah passed the order saying no relief will be granted to Essar.
Essar Steel said in a media statement that it would raise the concerns it raised before the high court at the NCLT.
Hearing son the matter, scheduled for Tuesday, are expected to begin at the Ahmed a bad bench of the NC LT where the case is listed.
Essar Steel, in its petition in the Gujarat high court, challenged a June 13 statement by the RBI in which the central bank directed banks to refer a dozen cases directly to NCLT. Essar contested a line in the RBI statement which said NCLT will accord priority to these cases.
It also objected to being club bed with the 11 other defaulters and said it had been in inconclusive discussion with banks to re structure debt when the directive was issued. Essar Steel claimed it had paid ₹3,467 cr ore to creditors between April 2016 and June 2017 and that there had been a substantial improvement in all operating parameters. The company said it should have been given time to complete its debt restructuring
Essar Steel said it should have been included in a second category of 488 defaulters that had been given six month store structure debt, failing which they would be taken to the NCLT for the start of bankruptcy proceedings.
This was turned down by the by the court on Monday.
Essar Steel owed lenders around ₹45,000 crore, of which ₹31,671 crore had become nonperforming as of March 31, 2016 —the cut-off date specified by the central bank.
In an 83-page order, justice Shah said the petitioner’ s argument that a bank can initiate proceedings under the I BC only on a direction by the RBI cannot be sustained. It cannot be held that such a direction is irrational, unjust, arbitrary or discriminatory, as Essar had claimed, but it would be appropriate for RBI to ensure that the benefits of all its debt restructuring schemes are extended to all without any discrimination, the court said, noting that one such scheme had become effective the same day that the central bank released its directive.