Gujarat HC Dismisses Essar Steel's Petition Against RBI

Judith Bessette
Julho 17, 2017

The Gujarat High Court on Monday dismissed Essar Steel's plea against the RBI directive to the banks to start insolvency proceedings against it, refusing to grant any relief to the steel major.

An RBI circular last month asked the banks to initiate action against Essar Steel and eleven other firms with over Rs 5,000 crore of outstanding loans each under the IBC.

Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) initiated proceeding in the National Company Law Tribunal (NCLT) under the newly-formed Insolvency and Bankruptcy Code.

Earlier this month, Essar Steel moved Gujarat High Court challenging bankruptcy proceedings initiated by Standard Chartered against it.

The RBI later issued a corrigendum to the press release and deleted the statement.

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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. However, Essar continued to raise objection on being clubbed with other 11 NPA accounts, whereas it was in discussion with banks for a financial restructuring.

The RBI's counsel disputed both points stating that it was not true that the company was discussing restructuring of repayments with banks, while insolvency proceedings would in fact help the company to shape up and not close it down. The action, he argued, was a violation of his client's fundamental right to equality before the law and equal protection of the law under Article 14 of Constitution.

No relief will be given to the debt-laden company with respect to the Insolvency and Bankruptcy Code (IBC), the court said. Bad loans stood at Rs 1 lakh crore in 2015-16 and from their have peaked to Rs 6 lakh crore. "The company was aware about SBI's action". You can not play games with the court. "This court is being misled", the RBI lawyer said.

The Central Bank, after receiving sweeping powers to resolve bad loans through an amendment to the Banking Regulation Act, issued the 13 June circular on the criterion that the total banking exposure of the company should be at least Rs5,000 crore and 60% of this exposure should have turned non-performing as of March 2016. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs 7,50,000 crore, which forms 5 per cent of the country's GDP.

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