Essar Steel’s Insolvency Proceedings: The Plot Thickens
Essar Steel’s lenders struggle to kick off insolvency proceedings
India’s latest effort to resolve bad loans under the new insolvency and bankruptcy code hit its first bump.
Standard Chartered Bank’s application against Essar Steel Ltd. will not be heard as scheduled on Friday at the National Company Law Tribunal after the steelmaker challenged the proceedings at the Gujarat High Court.
The bank on Wednesday appealed against the single-judge order before a division bench of the high court comprising Chief Justice Subhash Reddy and Justice VM Pancholi. The bench, however, adjourned the plea to July 11.
After Essar Steel moved the high court on Tuesday, the single-judge bench directed the NCLT to not hear any petition on the matter on or before July 7, Keyur Gandhi, lawyer for Essar Steel told BloombergQuint. The court also directed the Reserve Bank of India to explain its statement that the NCLT would accord priority to the 12 large stressed companies identified by it, which account for a quarter of India’s bad loans.
According to the oral order by Justice SG Shah of the Gujarat High Court, the company has questioned the basis on which Essar Steel was selected for insolvency proceedings. In particular, the cut-off date of March 31, 2016 used by the RBI for selecting the 12 accounts for resolution under the Insolvency and Bankruptcy Code.
Essar Steel is one of India's largest stressed asset cases and owes about Rs 45,000 crore to domestic and international lenders. India’s largest lender, State Bank of India Ltd., has also moved the NCLT against the company on the directions of the RBI.
The steelmaker was burdened with debt after a downturn in steel prices and a troubled expansion plan. It has been trying various ways to reduce its debt, including restructuring plans and finding a financial investor, without any luck.