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Warranted time to complete debt restructuring: Essar Steel

Warranted time to complete debt restructuring: Essar Steel

What could be a big boost for the government's drive against corporate bad loans, the Gujarat High Court today dismissed a plea by Essar Steel against the Reserve Bank of India (RBI). Essar's petition stirred a controversy over the RBI's press release which mentioned that such cases would be accorded priority for resolution. Essar even invoked Article 14 (equality before the law) and alleged the central bank had chosen it for IBC proceedings exclusively on the basis of its outstanding loan being greater than Rs. 5000 Crores with 60% or more classified as NPAs by banks as of March 31, 2016.

The steelmaker had sought quashing of the RBI order that directed banks to initiate bankruptcy proceeding against 12 defaulting debtors, companies including Essar Steel.

The company was challenging the RBI's directive, not the SBI's decision.

Though the Insolvency and Bankruptcy Code is in force since December 2016, the lender banks did not opt for insolvency proceedings because they knew it would "jeopardise company's operations" as suppliers may stop supplying material on learning about such action, Thakore said. "It also goes without saying, as already recorded herein above, that for filing any such proceeding, none of the financial company or Bank requires either the permission or direction from RBI for other agency or authority because it is their independent and absolute right to initiate any such proceeding/s", it added.

The company had 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.

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Essar had also argued that proceedings could result in the company's demise when it was "almost in the stage of revival" and working to resolve its debt problems, according to court documents. You can not play games with the court.

RBI, which is the main respondent in the case, engaged renowned lawyer from Mumbai Darius Khambata, former additional solicitor general of India and Maharashtra advocate general.

RBI had last week told the High Court that there was no singling out of Essar Steel for initiating bankruptcy proceedings and that the company was only one among 12 companies that have piled up debt beyond their capacity to repay or even service.

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


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