Grounds On Which Essar Steel Has Challenged RBI’s Insolvency Proceedings
The Gujarat High Court will hear the matter on July 7.
Indebted steelmaker Essar Steel Ltd. has filed a petition in the Gujarat High Court challenging the insolvency proceedings initiated against it by its lenders after being directed by the Reserve Bank of India.
The high court will hear the matter on July 7, the company spokesperson said in an emailed media statement. Essar Steel is one of India's largest stressed companies and owes about Rs 45,000 crore to domestic and international lenders.
According to the oral order by Justice SG Shah of the Gujarat High Court, published by Bar & Bench, the company has questioned the basis on which Essar Steel selected for insolvency proceedings. In particular, the company has questioned the cut-off date of March 31, 2016 used by the RBI for selecting 12 accounts for resolution under the Insolvency and Bankruptcy Code (IBC).
The RBI’s criteria was that the total banking exposure of the company should be at least Rs 5,000 crore and that 60 percent of this exposure should have turned non performing by March 2016. The RBI’s directions had come after it received sweeping powers to resolve bad loans through an amendment to the Banking Regulation Act. Following RBI’s directions, on Friday, State Bank of India had filed an insolvency case against Essar Steel.
According to the oral order, Essar Steel has highlighted that the company is in the midst of a recovery and repaid Rs 3,467 crore to bankers in FY17. It argues that putting an insolvency professional in-charge of the company at this stage would hurt the recovery process.
The RBI, in its press release dated June 13, had said that the National Company Law Tribunal (NCLT) would accord priority to the twelve cases identified by it.
In the oral order, Justice Shah says that it would be ‘appropriate’ to call upon the respondents to initially explain what they mean by “such cases will be accorded priority by the NCLT.”
The court will hear the matter next on July 7.
It would be appropriate for the National Company Law Tribunal to adjourn the matter, if any, listed before it before such date.Justice S.G. Shah, Gujarat High Court
Essar Steel is one of India's largest stressed asset cases, with total debt worth approximately Rs 45,000 crore, which includes dues to domestic and international lenders. The company was burdened with debt after a downturn in steel prices and a troubled expansion plan. The steel major has been trying various ways to reduce its debt, including restructuring plans and finding a financial investor. However, these have not worked.