SC extends stay on tribunal order in SPIC case

The Supreme Court has continued its stay on the Debt Recovery Appellate Tribunal’s (DRT) order asking banks to release around Rs 13 crore per month to ailing Southern Petrochemicals Industries Corporation (SPIC) to restart plant operations.

The outstanding debts to date, according to the lender banks, are more than Rs 2,800 crore while the valuation of assets of the ailing company, as done by Ernst & Young, was only Rs 1,553 crore.

A bench headed by Chief Justice K G Balakrishnan extended the stay till Friday (February 20) on the Madras High Court judgement that upheld the tribunal’s interim order against the Indian Bank, Dena Bank, State Bank of Patiala, Bank of Rajasthan and others.

On March 5, 2008, the tribunal had asked the banks to release Rs 8 crore and Rs 5 crore per month for operational expenses and to restart the plant, respectively, to SPIC.

Opposing the release of further funds, the banks, in their appeal, said that they had an exposure of over Rs 300 crore to the company, hoping they would be able to recover their dues after SPIC turned to the black.

However, the ailing company has failed to show progress despite receiving Rs 389 crore and the existing assets are not sufficient to meet the liabilities, the banks’ senior counsel Harish Salve said, adding, “The current assets of the company have gone down from Rs 798 crore in 2003 to Rs 260 crore as in October 2007”.

The High Court could not have directed the banks to release further money to the borrower under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, as it had defaulted in the past and had failed to comply with the terms of the restructuring package, the petition filed through Parekh and Company said.

Submitting that the urea plant of the company stopped functioning since March 2007, the banks pointed out that the DRT on January 3, 2008, had held that SPIC had not shown tangible progress and a release of funds would amount to throwing good money after bad.