Gujarat High Court dismisses Essar Steel petition

Marco Green
July 17, 2017

The Gujarat High Court on Monday dismissed Essar Steel's petition that had challenged the Reserve Bank of India's (RBI) directive to banks for initiating insolvency proceedings against the company.

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 RBI had identified top 12 NPA accounts, of which Essar Steel was one of them.

Essar Steel had argued that it should have been given an opportunity to present its case before the Reserve Bank of India chose to include the company among 12 defaulters that would be referred to bankruptcy court. At the hearing on Monday, Essar Steel's counsel Mihir Thakore argued that the SBI and other lender banks under the Joint Lenders Forum may not have approached the NCLT for insolvency proceedings, had the RBI not issued the circular.

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. However, Essar continued to object to being clubbed with other 11 NPA accounts, whereas it was in discussion with banks for a financial restructuring. Standard Chartered Bank had also moved the NCLT against Esaar.

That RBI's decision in picking these 12 accounts was arbitrary inasmuch as no opportunity of being heard was provided to these companies that were being referred to. You can not play games with the court. The steel company's debt has increased to over Rs 42,000 crores. Instantly acknowledging this error, the RBI told the Gujarat High Court that it would withdraw this line from the press release, and did so by the means of a corrigendum.

The case was seen as a landmark case under the newly introduced Insolvency and Bankruptcy Code (IBC), while the judgment is seen as a big boost for the banks, which are standing on the huge pile of corporate non-performing assets (NPAs), which according to the Reserve Bank of India (RBI) stood at Rs 7,50,000 crore as on March 31, 2017.

Other reports by Click Lancashire

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