Gujarat High Court quashes Essar Steel's plea against bankruptcy proceedings

Henrietta Brewer
July 17, 2017

Essar Steel had moved the high court against Reserve Bank of India (RBI) for initiating insolvency procedure against it.

In its defence, the RBI had clarified that Essar Steel was not the only company singled out for insolvency proceedings.

State Bank of India, which leads a consortium of banks under the Joint Lenders' Forum for corporate debt restructuring of Essar Steel and is a respondent in the case, has hired Shardul Amarchand Mangaldas and Co. Essar Steel's counsel Mihir Thakore had argued that the SBI and other lender banks under the Joint Lenders Forum may not have made a decision to approach the National Company Law Tribunal (NCLT) for insolvency proceedings had the RBI not issued such a circular.

Essar Steel is amongst the 12 stressed companies that RBI has shortlisted for insolvency proceedings.

It wasn't very thoughtful of the RBI to have directed NCLT to accord priority to certain cases. Essar Steel has a total debt at Rs. 42,000 crore to these banks.

Essar Steel, in its petition, had appealed that the RBI notification arrived even while the firm was trying to implement a board-approved restructuring package. The company had argued that it should not be treated at par with other 11 accounts, as while these accounts are now closed, Essar Steel is still doing well with an annual turnover of Rs 20,000 crore.

The company was challenging the RBI's directive, not the SBI's decision. It may be recalled that RBI had asked banks to treat bad loans as per the provisions available under the Insolvency and Bankruptcy Code. "This court is being misled", he had said during the arguments. Read Also: Gujarat HC issues stay on proceedings against Essar "The company was aware of the SBI's action".

Earlier this year, the RBI had identified top 12 NPA accounts, including of Essar Steel, for bankruptcy proceedings.

The National Company Law Tribunal has dismissed a money recovery suit filed by Australian lender Macquarie Bank Ltd against a unit of loss-making Uttam Galva.

RBI's criteria for selecting the dozen defaulters was that each of them owed at least ₹5,000 crore to banks and 60% of it had turned non-performing by 31 March 2016.

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