Published: Mon, July 17, 2017
Research | By Jo Caldwell

Essar Steel loses plea against bankruptcy proceedings

Essar Steel loses plea against bankruptcy proceedings

Essar Steel further said it apprehended that bankruptcy proceedings at this stage may lead to deterioration of the companys operations delay the resolution discussion with the lender.

The Gujarat High Court decision to reject the Essar Steel plea is a big win for RBI and banks since, in the period the case was being heard, many had begun to fear the NCLT process - planned as a way to fast-track resolution of cases like Essar Steel - would do the way of previous such attempts like DRTs and Sarfesai.

The High Court had, however, asked the central bank to explain the part of its statement that read "such cases will be accorded priority by the National Company Law Tribunal (NCLT)".

On July 4, Essar Steel had filed a petition in the Gujarat High Court challenging the RBI's press release dated June 13, which directed banks to refer top 12 NPA accounts to the NCLT under the IBC.

Essar Steel owed lenders around Rs45,000 crore, of which Rs31,671 crore had become non-performing as of 31 March 2016.

The High court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea. It was then argued "the initiation of proceedings under the Bankruptcy Code results in coercive steps including mandatory suspension of the functioning of the Board of Directors and hands over of management to Insolvency Resolution Professional (IRP)".

Banks are standing on the huge pile of corporate non-performing assets, which according to the RBI stood at Rs. 7,50,000 crore as on March 31, 2017.

The company had argued that it should not be treated at par with other eleven accounts, as while these accounts are now closed, Essar Steel is still doing well with an annual turnover of Rs 20,000 crore.

On Friday, Justice S G Shah had reserved the judgement till Monday after hearing the arguments by the petitioner and the respondents, which included the RBI and SBI, which is leading the consortium of 22 banks.

In its defence, the RBI had clarified that Essar Steel was not the only company singled out for insolvency proceedings.

The RBI's directive followed amendments to the Banking Regulation Act, which permitted the regulator to intervene directly in the resolution of almost Rs 10 lakh crore in stressed assets on the books of Indian banks.

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