Essar steel’s petition against RBI rejected

Essar was the first among the 12 shortlisted large loan defaulters to move the court stalling the insolvency process.

Published: 18th July 2017 08:45 AM  |   Last Updated: 18th July 2017 08:58 AM   |  A+A-

Darius Khambata, RBI Counsel

By Express News Service

MUMBAI: Banks battling bad loans got a booster shot on Monday with the Gujarat High Court rejecting Essar Steel’s plea against bankruptcy proceedings. The outcome also sends a strong signal to other loan defaulters such as Bhushan Steel, which is reportedly preparing to challenge the Reserve Bank of India’s selection of 12 large non-performing assets (NPAs) and lenders’ decision to initiate the insolvency process moving the National Company Law Tribunal (NCLT).

Essar was the first among the 12 shortlisted large loan defaulters to move the court stalling the insolvency process. Among the 12, only one NPA case -Jyoti Structures - was admitted with the Tribunal without a hitch so far, while the others are at different stages.

A disappointed, debt-ridden Essar has the option to move the Supreme Court further stalling the NCLT’s proceedings, though the company officials could not be reached for comments. But for now, the high court order gives a green signal to the banking consortium to resume the NCLT activity.
It was in May that the government had given more teeth to RBI amending the Banking Regulation Act, which in turn allowed the RBI to handhold banks with a phase-wise NPA resolution via the Insolvency and Bankruptcy Code (IBC).

RBI also put banks on a time clock and expects to make progress setting at least the top 40-50 large accounts before March. In all the banking system has stressed loans worth `10 lakh crore, of which the selected 12 loans account for about a quarter. This selection of a dozen companies was what Essar objected to terming the process arbitrary.

Essar argued to have paid Rs 3,567 crore and was in talks with its lead banker over a possible restructuring that failed to materialise due to IBC action.Defending its stance, RBI’s counsel Darius Khambata said the Rs 5,000 crore criteria used to select companies being referred to the NCLT was logical. It stressed Essar Steel’s financial position was not fully accurate and that the aggregate debt of the company rose sharply.
The Gujarat HC also sought a change in RBI’s June 13 press release, which was duly corrected.

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