Gujarat HC rejects Essar Steel plea against RBI's insolvency circular

Laura Christensen
July 17, 2017

The company said it was not, for instance, a willful defaulter, that it had in fact paid Rs 3,467 crore back to banks and financial institutions over the previous 15 months and that its debt was in any case in the process of being restructured - in other words, the IBC proceedings would jeopardize this process of restructuring and repayment of the loan.

"Only because SCB has corresponded to SBI for its proposal with reference to JLF activities, it cannot be held that SCB could not have initiated insolvency proceedings but it has done it only because of RBI guidelines by way of press release", the order stated. Essar even invoked Article 14 (equality before the law) and alleged the central bank had chosen it for IBC proceedings exclusively on the basis of its outstanding loan being greater than Rs. 5000 Crores with 60% or more classified as NPAs by banks as of March 31, 2016.

The Gujarat High Court on Monday dismissed Essar Steel India's appeal against a Reserve Bank of India (RBI) order that asked creditor banks to start insolvency proceedings against the steelmaker, lawyers on the case said. You can not play games with the court.

The court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea.

The steel companys debt has increased to over Rs 42,000 crore. 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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"The company had argued before the HC that it should not be treated on par with other eleven accounts (firms) which have been closed now, while Essar Steel is still doing well with an annual turnover of Rs 20,000 crore", a report on The Economic Times said. A detailed order is expected later on Monday.

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.

"We respect the decision of the Hon'ble High Court and will accordingly be raising these issues for consideration by the Hon'ble NCLT", said an Essar Steel spokesperson. Gujarat's Advocate General Kamal Trivedi appeared for Standard Chartered Bank; He was briefed by Singhi & Co.

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