This article first appeared on Business Standard on 5 July.
on Tuesday filed a petition in the Gujarat High Court, challenging the alleged arbitrariness of the Reserve Bank of India
(RBI) in selecting stressed accounts for initiating insolvency
proceedings under the new bankruptcy law.
Essar’s main contention is that the RBI
made an “arbitrary distinction” between the 12 identified companies and the rest. While the RBI’s directive to banks was to refer the 12 cases directly to the National Company Law Tribunal (NCLT) under the Insolvency
and Bankruptcy Code (IBC), 2016, other stressed borrowers were given six months to arrive at a resolution with their lenders.
Further, the cut-off date of March 31, 2016, was arbitrary, as it did not take into account subsequent developments in the companies’ performance and their efforts to arrive at a satisfactory resolution, it said.
The high court has posted the matter for further hearing on July 7.
Even though Essar has become the first among the 12 companies to challenge the RBI’s “arbitrariness”, banking sources said a few others, too, could follow suit.
Bhushan Steel was yet to receive the NCLT petition and hence had not taken a view, while Electrosteel Steels would not challenge unless there was something “negative” in the petition, sources said. The company was expecting the petition any day now. “The NCLT hearing was scheduled for today but had to be adjourned because it had not received the petition,” a source said.
Monnet Ispat & Energy received the petition on Monday evening and was examining it. Bhushan Power & Steel has, however, decided not to contest.
Among the 12 stressed accounts, five were from the steel sector: Bhushan Steel, Essar Steel, Bhushan Power & Steel, Monnet Ispat & Energy, and Electrosteel Steels.
Among the non-steel companies, ABG Shipyard and Lanco Infratech said they had no intention of challenging the insolvency
“No, we are not challenging ABG Shipyard being placed under the NCLT. Since the Liberty House bid is valid, it is not required for us to challenge,” a source from ABG Shipyard said.
had followed a method to arrive at the list of 12. An internal advisory committee, set up by the central bank at its meeting dated June 12, recommended for the IBC reference all accounts with fund- and non-fund-based outstanding amounts greater than Rs 5,000 crore with 60 per cent or more classified as non-performing by banks as of March 31, 2016.
For other NPAs not falling under this criterion, a resolution plan was to be finalised by banks within six months. And, if a viable resolution plan was not finalised, then insolvency
proceedings could be filed by banks under the IBC.
Earlier, to resolve the stressed accounts issue, the RBI
had come up with the strategic debt restructuring and the scheme for sustainable structuring of stressed assets, none of which had made much headway.