March 23, 2018

Gujarat High Court quashes Essar Steel's plea against bankruptcy proceedings

17 July 2017, 05:14 | Winifred Adams

Gujarat High Court dismisses Essar Steel's plea against RBI; insolvency process to continue

Gujarat HC dismisses Essar Steel's plea against RBI

PSU bank stocks turned green in the closing hours of trade on Monday after the Gujarat High Court (HC) dismissed Essar Steel's plea against RBI.

On its part, the RBI contested in the court that it is not singling out Essar Steel for insolvency proceedings, and that all the big loan defaulters with outstanding loans above Rs 5,000 crore would be subject to the same.

The company argued before the HC that it should not be treated on par with other eleven accounts (firms) which have been closed now, while Essar Steel is still doing well with an annual turnover of Rs 20,000 crore. RBI had named a total of 12 firms including Essar Steel and had asked banks to initiate proceedings against these companies under the Insolvency and Bankruptcy Code. Against this initiative the Essar Steel moved High Court and got a stay on all proceedings against the company at tribunal.

It wasn't very thoughtful of the RBI to have directed NCLT to accord priority to certain cases. This goes up to Rs 10 lakh crore when those of private and other lenders are added on.

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Essar Steel had moved court against the June 13 RBI circular contending that RBI's decision to select the steel producer among the 12 NPA accounts as arbitrary while the firm was in an advanced stage of loan restructuring. They were also aware that lenders will file for insolvency proceedings.

One of these 12 accounts was that of Essar Steel.

RBI said in its submission to the court that the 13 June press statement was based on the recommendation of a high-level internal committee and that the central bank had no documentary evidence to produce other than the press release itself to support the decision. The counsel for the RBI, also told the court that the non-performing assets (NPA) of the company rose from Rs 31,671 crore till March 31, 2016 to Rs 32,864 crore till March 31, 2017 this year. "This court is beingmisled", the RBI lawyer had said. Today's verdict means that lenders, led by State Bank of India (SBI), can begin bankruptcy proceedings under the NCLT against the company.

Thus, a total of 12 accounts constituting of 25% of gross NPAs qualified for insolvency.

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