The RBI today told the Gujarat High Court that Essar Steel was not singled out for insolvency proceedings and all big defaulters with over Rs 5,000 crore of outstanding loans are being subjected to the process with an aim of resolving the bad loan problem plaguing the Indian banking system.
Arguing before Justice S G Shah, the central bank's counsel Darius Khambatta also said that the non-performing assets (NPAs) of Essar Steel rose from Rs 31,671 crore on March 31, 2016 to Rs 32,864 crore on March 31 this year.
Essar Steel was still very far from completing its loan restructuring process, the Reserve Bank of India (RBI) lawyer said.
Khambatta also defended the Insolvency and Bankruptcy Code (IBC), saying it was not a draconian process. Time-bound resolution under the IBC also protects the interests of the company, he said.
The RBI lawyer's argument will continue tomorrow, even as Justice Shah said that his earlier order staying the proceedings against Essar Steel at the National Company Law Tribunal (NCLT) will continue.
In its submission, Essar said "We fully respect the spirit of the IBC and NCLT process of resolving the issue of the NPAs in a sort time bound manner. Our limited point is that the company is operating well (at over 80 per cent capacity) and servicing substantial interests."
It said any immediate reference to NCLT at this stage could cause a disruption in the company's operations and all it is requesting is a "short time bound period of 6 months to try and resolve the restructuring which is under discussions with the lenders for several months".
"If, for whatever reason, this does not materialise, the company will get referred to NCLT in normal course and the process will continue. A similar opportunity has been given to many others under clause (IV) of the RBI press release of June 13, 2017," it said, adding "This request does not in anyway cause prejudice to anyone and possibly, will help preserve value".
The Gujarat High Court on July 7 had restrained the NCLT from conducting any further proceeding against Essar Steel till today under the IBC.
Essar Steel had contended that the RBI's direction to the banks to initiate action against it under the IBC was improper as its was in advanced stage of restructuring.
On a plea by the Essar Steel, the bench had on July 4 sought the RBI's reply as to why only certain cases including that of Essar Steel should be accorded priority by the NCLT.
The company submitted it should have been given an opportunity to present its case before it was placed in the list of 12 accounts (firms) to be referred to NCLT under the provisions of IBC.
An RBI circular last month asked the banks to initiate action against Essar Steel and eleven other firms with over Rs 5,000 crore of outstanding loans each under the IBC. Essar Steel challenged it before the Gujarat High Court, saying that the directive was improper as the firm was already in an advanced stage of loan restructuring.
It should not be treated on par with the other 11 accounts because these accounts are now closed while Essar Steel is doing well with annual turnover of Rs 20,000 crore, the company said.
Essar Steel was referred to the NCLT despite the fact that it was in an advanced stage of finalising a restructuring proposal in accordance with earlier RBI circulars, it argued.
It wanted to be treated under the second category mentioned in the RBI's June 13 circular where NPA accounts under Rs 5,000 crore are to be given six months to finalise loan restructuring plans, the company said.