The Gujarat High Court on Monday disposed of Essar Steel’s petition against insolvency
proceedings initiated by its lenders after a directive by the Reserve Bank of India (RBI).
This is likely to smoothen the insolvency
proceedings against Essar as well as the 11 other non-performing accounts identified by the RBI.
The four other steel companies
on the list, however, have already said they would cooperate with lenders and not move court to stall proceedings.
On July 4, Essar Steel, promoted by the Ruias, had filed a petition against the insolvency
proceedings initiated against it at the National Company Law
Tribunal (NCLT). Commenting on the court’s observations that the NCLT
will have to decide on its own whether the insolvency
petition is required to be entertained or not, Essar Steel
stated in an official communiqué, “We respect the decision… (of the court) and will accordingly be raising these issues for consideration by the NCLT.
The Ahmedabad bench of the NCLT
is likely to take up insolvency
proceedings against Essar Steel, initiated by a consortium of 22 banks led by the State Bank of India as well as Standard Chartered Bank, on Tuesday.
The court asked the RBI
to see to it that benefits of all its schemes were “equally offered and extended to all without discrimination”.
On July 8, the central bank had to issue a corrigendum, deleting a line in its June 13 press release that said certain cases be accorded priority by the NCLT.
The court also raised questions over the RBI’s functioning and jurisdiction.
The central bank has already admitted that there were no supporting documents to its June 13 press release directing the lenders and the NCLT
to accord priority to 12 large non-performing assets
The Gujarat HC
said the RBI
seemed to be under the impression that matters pertaining to the Company Law
had been transferred to the NCLT
by enacting the Insolvency
and the Bankruptcy Code.
However, no judicial or quasi-judicial authority could be guided or directed by government institutions like the RBI.
A senior public sector banker dealing with insolvency
cases said the verdict was not a surprise as facts were clear. Banks have been focussing on resolution plans for the NCLT
cases. Essar had earlier claimed the RBI
directive was “arbitrary” and impeded the recovery process amid discussions for debt restructuring with banks.
The court rejected the argument. According to the Standard Chartered Bank
counsel, Essar Steel
in its restructuring proposal had offered to start payment of dues only after 25 years and that too only with 1 per cent interest. Earlier the RBI, the SBI and Standard Chartered Bank
had claimed that Essar Steel
had suppressed facts from the court about the company agreeing to insolvency
proceedings against it as evident in the minutes of the Joint Lenders’ Forum (JLF) meeting held in June. However, the court said the allegations were not material.According to the RBI’s arguments before the court earlier, Essar Steel’s account had an outstanding bank exposure of Rs 45,655 crore, Of this, Rs 31,671 crore had become non-performing by March 31, 2016. The same increased to Rs 32,864 crore by March 31 this year.