Essar Steel NPAs rose in FY17, it’s not being singled out: RBI to court

Essar Steel is not being singled out and all big defaulters are being taken through a structured process for speedy resolution of the bad loans problem plaguing the Indian banking system, Reserve Bank of India (RBI) counsel Darius Khambatta told the GujaratHigh Court on Wednesday.

The court was hearing Essar Steel’s petition challenging the central bank’s decision to recommend bankruptcy proceedings against the company.

Although the Insolvency and Bankruptcy Code (IBC) is a timebound process, it is “not draconian” and “protects interests” of the company as well, Khambatta argued. “IBC is not for winding up a company but to resolve and restructure to avoid winding up.”

Essar’s petition asked the high court to set aside RBI’s directive to banks on the grounds that it was already discussing a restructuring proposal with its lenders. The petition said the RBI chose “objective and non-discretionary criteria” for selection, which ignored factors like operational performance and the resolution process that was underway.

Khambatta said that “records show that in Essar steel case, it was very very far from completing the restructuring”.

He said that Essar owed lenders some ₹45,000 crore in total of which ₹31,671 crore were nonperforming assets (NPAs) as on March 31, 2016. He further said that this rose to ₹32,864 crore as on March 31 this year.

The outcome of this case will also decide whether the lenders— State Bank of India (SBI) and Standard Chartered Bank—can proceed with their petitions at the National Company Law Tribunal (NCLT). It will also provide key inputs in other cases where banks have dragged companies to the tribunal, according to lawyers and bankers.

Essar’s counsel Mihir Thakore argued that the ₹5,000 crore criterion used by RBI was not reasonable. The RBI, in its June 13 press release, had said that all firms which had an aggregated exposure of ₹5,000 crore to the banking system, 60% of which had turned bad as on March 2016, should be first taken to bankruptcy court.

Questioning the arbitrariness of the June 13 statement, Essar Steel representatives told the court on Wednesday that out of the 500 NPA cases identified by RBI, the central bank had categorized 12 companies, including Essar Steel, against whom insolvency proceedings are to be initiated before NCLT.

The remaining, 488 companies would get six months for restructuring, failing which they would go to the NCLT.

Thakore, while challenging the central bank’s decision to classify the company among others for initiating insolvency proceedings, said that Essar Steel should fall in the second category. The reason, he said, is that the company had taken enough steps to tackle the issue of NPAs and that the Joint Lenders Forum formed for corporate debt restructuring of the company had not rejected the company’s restructuring plans. The company was on a path to recovery and that their steel plants were working at 80% capacity.

Thakore said if Standard Chartered went to NCLT on its own and not based on RBI’s directive, it could not do so as per the law and that the bank was in active discussion with Essar Steel for debt restructuring.

The court has ordered further hearing of the petition on Thursday and it has halted proceedings against Essar Steel listed at NCLT till then.

ESSAR STEEL LAWYERS TOLD HC THE COMPANY HAD A REVENUE OF ₹12,000 CR FOR LAST TWO YEARS AND THIS YEAR IT WAS AIMING AT CLOCKING ₹21,700 CR