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Essar to HC: Debt revamp in last stages, firm will sink if mgt changed now

Firm says it is on recovery path, repaid Rs 3,467 cr in FY17; claims petitioner suppressed facts

BS Web Team  |  New Delhi 

Essar
Essar

The  on Wednesday heard Essar Steel’s plea against proceedings initiated against it at the National Company Law Tribunal (NCLT) by its lenders after being directed by the Reserve Bank of India (RBI).

During an elaborate hearing today, said the company was in final stage of talks with JLF to restructure debt and is on a recovery path.

It defended its case saying, the company may come to a halt if management replaced with interim professional.

While arguing its case, Essar said, "SBI was close to finalising contours of debt restructuring on June 13, hence cannot direct immediate proceedings under IBC.

The outcome will also decide on whether lenders—State Bank of India (SBI) and Standard Chartered Bank—can proceed with their petitions at the National Company Law Tribunal (NCLT).

Here are the highlights:

Essar Council To Gujarat HC: Going to NCLT protects co's interest and allows timely restructuring.

Essar Council To Gujarat HC: IBC provides detailed time-bound process to restructure debt and avoid winding up

Essar Council To Gujarat HC: Will prove that petitioner has suppressed facts and has filed on false case.

Essar Council To Gujarat HC: Govt wants to recover country's economic value by tackling NPAs.

Essar Council To Gujarat HC: has Rs 45,670 cr of debt outstanding.

Essar Council To Gujarat HC: RBI's threshold of Rs 5,000 cr to trigger process not reasonable 

Essar Council To Gujarat HC: Company was in final stage of talks with JLF to restructure debt.

Essar Council To Gujarat HC: SBI was close to finalising contours of debt restructuring on June 13.

Essar Council To Gujarat HC: therefore cannot direct immediate proceedings under IBC.

Essar Council To Gujarat HC: There cannot be a general directive by to fast track cases under IBC.

Essar Council To Gujarat HC: and government must take an objective case-by-case view in the matter.

Essar Council To Gujarat HC: Company may come to a halt if management replaced with interim professional.
heard Essar Steel's petition against proceedings last week.

The company questioned RBI's decision to set March 31, 2016 as cut-off date for selecting accounts for proceedings.

claims it is on a recovery path and repaid Rs 3,467 crore to bankers in FY17.

In its petition, had argued on two main points. Firstly, it blamed the change in the government’s gas allocation policy for its financial woes, which led to loan defaults. Secondly, it said the central bank chose “objective and non-discretionary criteria” for selection, which ignored factors such as operational performance and the resolution process that was underway.

“As far as the ‘reasons’ that may have had for selection of the 12 accounts are concerned, to my mind it is somewhat of an academic question—real question being whether these 12 accounts are large NPA (non-performing assets) cases or not,” said Sitesh Mukherjee, partner at law firm Trilegal.

“If they are indeed defaulters then the financial creditors may be entitled to bring action against these borrowers under the Code, whether or not there is a directive from

According to the Essar Steel’s petition, in March 2011, the then government (UPA) changed its gas allocation policy and cut off the supply to the company after categorising the steel sector to “non-core arear” from “priority”. This was done because of shortage of supply of gas from Krishna Godavari D6 field. Subsequently, in July 2011, the supply was completely stopped, leading to halting of the production capacity. The company had to bear a loss of approximately Rs26,000 crore between 2011 and March 2016 due to non-supply of gas, it said.

“The loss caused to the company has a result of reduction in gas supply is one of the chief causes for reduction on production and resultant inability to make payment to the lenders,” the petition said.

The company also stated, at length, the improvement in its operation, a fact, which the failed to take into consideration, according to

It said that operational performance of improved with production levels zooming from 3.8 million tonnes in fiscal year 2016 to 5.7 million tonnes in FY17.

The 12 NPA accounts have debt dues over Rs 5,000 crore each. Sixty per cent of the debt of these 12 was 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.

First Published: Wed, July 12 2017. 12:07 IST
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