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Essar Steel vs RBI: Central bank to issue corrigendum

Gujarat HC to hear Essar's plea against insolvency proceedings on July 12

Vinay Umarji  |  Ahmedabad 

RBI, reserve bank of India

The Reserve Bank of (RBI), on Friday, told the that it would issue a corrigendum on its June 13 circular that allowed the National Company Law Tribunal (NCLT) to accord priority to 12 non-performing asset (NPA) accounts set to face proceedings. The court also adjourned till July 12 the hearing of Essar Steel’s petition asking for a stay on proceedings.

The court was hearing Essar Steel’s plea, filed on July 4, against proceedings initiated against it at the by State Bank of India-led 22 banks’ consortium of lenders as well as

The June 13 circular read: “The Reserve Bank, based on the recommendations of the Internal Advisory Committee, will accordingly be issuing directions to banks to file for proceedings under the IBC (and Bankruptcy Code) in respect of the identified accounts. Such cases will be accorded priority by the ” In its hearing on July 4, the court had sought a clarification from on the said statement.

The June 13 circular had stated that the 12 NPA accounts, with outstanding debt of over Rs 5,000 crore, would be accorded priority by the Sixty per cent of the debt of these 12 was being termed “bad” by banks as on March 31, 2016. The total debt of these is expected to be in excess of Rs 1.5 lakh crore.

The NPA resolution process was supposed to have begun with the banks approaching to appoint a professional to manage a company, even as the existing board gets suspended. The professional gets 180 days to come up with a workable solution for the company so that it can repay its loans. This timeline can be extended by another 90 days. If the company fails to come up with a solution within 270 days, a liquidator would be appointed.

On Friday, Essar Steel’s counsel, led by Mihir Thakore, argued that as per Section 35 of the Banking Regulations Act, lenders could not have initiated proceedings at a time when restructuring process was on. The company’s counsel also argued that could not have been categorised along with the other 11 merely on the basis of Rs 5,000 crore since, unlike others, was in advanced stages of recovery.

As per the counsel, of the other NPA accounts, three were non-functional whereas was doing well since last one year and had paid almost Rs 3,467 crore to its lenders even as it agreed to boundary conditions for a resolution plan with the lenders.

In its argument before judge S G Shah, counsel said that the should have considered the company’s past record apart from the operating profits being made as well as opinions of various banks and financial institutions in respect of viability of the company before asking banks to initiate proceedings. has a debt of around Rs 42,000 crore. As per the company, its manufacturing capacity utilisation stands at 80 per cent and its turnover at Rs 20,000 crore.

The adjournment of the hearing till July 12 will follow Standard Chartered Bank’s appeal to a division bench of the High Court, which has been adjourned till July 11. The international lender has appealed for quashing of the single-judge Bench’s stay on proceedings filed against at the

The London-based international lender had appealed on Wednesday before the division Bench of the court to quash the stay on proceedings, on grounds of suppressed facts by claimed in its appeal that it was not party to any revival or restructuring package nor was invited in any lenders’ meeting by Essar Steel, as the latter claimed in its petition.

The bank, in its appeal, a copy of which is in possession of Business Standard, maintained that had “failed to disclose” to the single-judge Bench that was “neither a party to any alleged restructuring package, nor any consent has been obtained to such package”. The appeal maintained that was not a member of any committee of lenders which was being claimed to be considering Essar Steel’s restructuring package.

First Published: Sat, July 08 2017. 01:56 IST