Gujarat HC rejects Essar Steel plea against IBC circular

Jay Anderson
July 17, 2017

On July 14, the court had reserved its order for Monday on Essar Steel's plea against July 13 RBI circular to banks to act under Insolvency and Bankruptcy Code against the steel major and 11 other firms with over Rs 5000 crore outstanding loans. Essar Steel was one of these 12 companies. 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.

Essar Steel, in its petition, had appealed that the RBI notification arrived even while the firm was trying to implement a board-approved restructuring package.

Essar Steel in its petition to the court has challenged a 13 June directive of RBI, in the form of a press release, in which the Central bank directed banks to refer a dozen cases, including Essar Steel, directly to NCLT. Read Also: Gujarat HC issues stay on proceedings against Essar "The company was aware of the SBI's action".

Essar Steel owes lenders around Rs 45,000 crore ($6.99 billion), of which Rs 31,670 crore had become non-performing as of 31 March 2016, the Mint newspaper previously reported citing court hearings. You can not play games with the court.

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Earlier this year, the RBI had identified top 12 NPA accounts, including of Essar Steel, for bankruptcy proceedings.

RBI counsel Darius Khambata said the steel firm had suppressed facts and misled the court to get a favourable decision.

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. The apex bank had told the court that Essar Steel was not singled out as all big defaulters - having over Rs 5,000 crore of outstanding loans - are being taken through the same route with an aim to resolve the bad loan problem plaguing the Indian banking system. He also contended that Essar Steel was still very far from completing the restructuring.

Other reports by BadHub

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