Warranted time to complete debt restructuring: Essar Steel

17 July, 2017, 20:37 | Author: Ora Austin
  • Gujarat High Court dismisses Essar Steel’s plea against the RBI in insolvency case

PSU bank stocks turned green in the closing hours of trade on Monday after the Gujarat High Court (HC) dismissed Essar Steel's plea against RBI. Essar's petition stirred a controversy over the RBI's press release which mentioned that such cases would be accorded priority for resolution. Rs 31,671 crore of the total sum had been deemed non-performing on March 31, 2016. A detailed order is expected later on Monday. "It can not be held that directives of RBI under reference by impugned press release are binding upon SCB and therefore SCB is bound to consider the restructuring proposal by the petitioner, wherein petitioner has offered to start payment of dues only after 25 years and that too only with 1% interest".

The company was challenging the RBI's directive, not the SBI's decision.

Essar Steel owes lenders around Rs 45,000 crore.

Essar Steel was referred to the NCLT despite the fact that it was in an advanced stage of finalising a restructuring proposal in accordance with earlier RBI circulars, it argued.

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Though the Insolvency and Bankruptcy Code is in force since December 2016, the lender banks did not opt for insolvency proceedings because they knew it would "jeopardise company's operations" as suppliers may stop supplying material on learning about such action, Thakore said.

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. Essar Steel argued that it was not given adequate opportunity to present its position before the insolvency case was filed at the NCLT.

Recovery of bad loans, a millstone around the neck of Indian banks, had gathered momentum after years of dithering when the Prime Minister Narendra Modi-led NDA government empowered the Reserve Bank of India (RBI) last month to direct banks to take big defaulters through the process prescribed under the Insolvency and Bankruptcy Code that specifies time-bound resolution. "This court is beingmisled", the RBI lawyer had said.

The ruling paves the way for the start of bankruptcy proceedings against Essar Steel, although the company could appeal the ruling. About 12% of the total advances by public sector banks are NPAs, the RBI counsel had stated. Gujarat's Advocate General Kamal Trivedi appeared for Standard Chartered Bank; He was briefed by Singhi & Co.

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