Tribunal Approves Bankruptcy Process Against Essar Steel
NCLT upholds SBI’s choice for appointment as interim resolution professional
Ahmedabad: In a major blow to the Ruia brothers led Essar Steel, the National Company Law Tribunal (NCLT), Ahmedabad on Wednesdayapprovedthebankruptcy proceedings against the steelmaker and upheld State Bank of India’s choice for appointment as an interim resolution professional.
With this order, Satish Kumar Gupta of consulting firm Alvarez and Marsal India will take over the powers of the Essar Steel board and work with the management in running the day-to-day affairs of the steel maker. The Ruia brothers and their sons, who have shepherded the fortunes of the firm since it was founded a few decades ago, will lose power to direct the company’s affairs temporarily.
ThecourtonWednesdayadmitted both petitions filed by State Bank of India(SBI)andStandardChartered Bank (SCB).
“We will review the order first and then issue the statement,” said Essar Steel in an e-mail response. Withthisorder,therewillbeamoratorium on transfer or disposal of any Essar Steel assets till the insolvency proceedings are settled.
The Insolvency and Bankruptcy Code (IBC) provides for the takeoverof acompany’smanagementby an insolvency resolution professional (IRP) if a petition filed by the lenders is admitted by the NCLT. The IRP, who is appointed by the committee of creditors, works with the existing management to find a solution for six months which can be extended to nine months. If no solution is found, the assets of the company are liquidated.
Essar is among the few big cases that have been referred to NCLT for settlement following an RBI directive in June.
Till now, insolvency proceedings against Bhushan Steel, Bhushan SteelandPower,ABGShipyardand Jyoti Structures have begun.
Essar owes SBI, the lead bank, a sum of ₹ 14,860 crore and strongly argued that it is not a “wilful defaulter” and that there has been “no diversion of funds, fraud or malfeasance”. Essar did not dispute the debt due to State Bank of India and Standard Chartered Bank.
Essar also pleaded that non-supply of natural gas because of a government fiat impacted the company’s operations severely.
WITH THIS ORDER
Also sabotage by Naxalites of a crucialslurrypipelinecausedamajor disruption to its operations.
In recent months, Essar says it has managed to improve its steelmaking capacity utilisation from 35% to somewhere between 75% and 80% and has also repaid some loans. The tribunal in its Wednesday order while acknowledging the improved performance said that the debt still remains onerous. “But the little progress (in Essar Steel’s financial performance) in the last financial year, there appears to be no scope for Essar to repay its debt till 25 years or in a span of 25 years.”