Already restructuring, stop insolvency actions: Essar Steel

The Gujarat High Court today prevented the National Company Law Tribunal from conducting any further proceeding against Essar Steel till July 12 under the Insolvency and Bankruptcy Code.
A bench of Justice S G Shah stopped the NCLT from proceeding further against the Essar Steel on the firm's contention that the RBI's direction to the banks to initiate action against it under the Insolvency and Bankruptcy Code 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 National Company Law Tribunal.

During an elaborate hearing today, the Reserve Bank of India also assured the bench that it would correct a line in its June 13 circular about the classification of Non Performing Asset (NPA) accounts.
"The Reserve Bank ... Will accordingly be issuing directions to banks to file for insolvency proceedings under IBC in respect to the identified accounts. Such cases will be accorded priority by the NCLT," read a paragraph in the RBI's circular.
The court had earlier expressed "shock" over the line which said 'such cases will be accorded priority by the NCLT' and had asked the RBI to explain it.

The RBI's counsel admitted today that the sentence should not have been there and assured the court that the Central bank will issue a corrigendum to replace that sentence before the next hearing on July 12.

Essar Steel's lawyer Mihir Thakore contended that his client 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.
The RBI last month had identified 12 accounts (companies) for insolvency proceedings, each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of the total NPAs of banks.

Thakore argued that just because Essar Steel's debt was over Rs 5,000 crore, it should not be treated on par with other firms, as some of the other 11 firms are now closed while Essar Steel is still doing well with annual turnover of Rs 20,000 crore.
The company was referred to NCLT despite the fact that it was in advanced stage of finalising a restructuring proposal, which was also in accordance with the previous RBI circulars, he said.
The steel giant contended that instead of putting the company in the first category (referring it to NCLT) because the NPAs are above Rs 5000 crore, its case should be treated as of second category mentioned in the RBI's June 13 circular.

As per the circular, NPA accounts under Rs 5,000 crore should finalise a resolution plan within six months. Only if the plan is not agreed upon within that period, banks can file insolvency proceedings.
Essar Steel said though its NPAs are above Rs 5,000 crore, it should be treated as second category account due to its ongoing efforts to restructure the company which was hit by stoppage of gas supply by the government and steel dumping from foreign countries.
Seeking a stay to NCLT proceedings against the company, Thakore also contended that when the consortium of lender banks is considering the restructuring proposal, the RBI should not refer its case to NCLT just because the NPAs are above Rs 5,000 crore.

Justice Shah adjourned the matter till July 12, when the the court would hear other parties, including RBI. The court also said its earlier directive to the NCLT not to conduct any hearing in this case would remain in effect till July 12.