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Gujarat HC Dismisses Essar Steel's Petition Against RBI

Gujarat HC Dismisses Essar Steel's Petition Against RBI

A detailed order is expected later today.

Essar Steel had moved the high court against Reserve Bank of India (RBI) for initiating insolvency procedure against it. And that message is: lenders such as SBI have the right to invoke IBC proceedings against borrowers who are unable to repay loans, that often enough these borrowers have not tried their best to come to a quick and amicable resolution process and that, since the NCLT is a legal process, all issues that are sought to be raised before other courts will be dealt by it anyway.

It wasn't very thoughtful of the RBI to have directed NCLT to accord priority to certain cases.

"Our request to the high court was that in view of the specific facts of Essar Steel i.e. advanced stage of discussions with lenders on its debt resolution proposal, payment of Rs 3,467 crore to banks between April 2016 and June 2017, and the substantial improvement in all operating parameters, the company should have been given time to complete its debt restructuring", it said.

Essar Steel had moved the high court challenging the RBIs June 13 circular asking the banks to initiate action against the company and eleven other accounts (companies) with over Rs 5,000 crore of outstanding loans each under the Insolvency and Bankruptcy Code (IBC).




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.

Essar Steel claimed that it's financial health had improved during the financial year 2016-17 and it no longer required to be a part of the 11 other NPAs as declared by the RBI and that it deserved to be a part of the other 488 cases that have been provided given six months to restructure. 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)". "This court is beingmisled", the RBI lawyer had said.

One of these 12 accounts was that of Essar Steel. 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.

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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