Essar Steel loses plea against bankruptcy proceedings

Essar headquarters

Employees walk past an Essar Group logo outside the company headquarters in Mumbai in this 2013 file

In what is being termed as a win for government's efforts to reduce corporate bad loans, the Gujarat High Court today rejected a plea filed by Essar Steel challenging RBI's order related to treatment of bad loans. Essar's petition stirred a controversy over the RBI's press release which mentioned that such cases would be accorded priority for resolution.

Each of these 12 accounts that have failed to repay loan to banks have an outstanding debt of Rs 5,000 crore. A detailed order is expected later on Monday. The RBI later issued a corrigendum to the press release and deleted the statement.

Essar Steels counsel Mihir Thakore had argued that the SBI and other lender banks under the Joint Lenders Forum may not have chose to approach the National Company Law Tribunal (NCLT) for insolvency proceedings had the RBI not issued such a circular. "The company was aware about SBI's action".

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. It had said it was in talks with banks about restructuring repayments.

However, the Court observed that it can not be held that RBI's directions are in the nature of classification or such classification is irrational, unjust, arbitrary or discriminatory. The counsel said insolvency proceedings would help the company to shape up and not close it down.

The ruling paves the way for the start of bankruptcy proceedings against Essar Steel, although the company could appeal the ruling.

Essar had also argued that proceedings could result in the company's demise when it was "almost in the stage of revival" and working to resolve its debt problems, according to court documents. About 12% of the total advances by public sector banks are NPAs, the RBI counsel had stated.

"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. Also, has the Essar case being prolonged, this would have prompted other firms to approach courts across the country to try and delay the NCLT process.

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