Gujarat HC gives no respite to Essar Steel in bankruptcy proceedings

Gujarat High Court has dismissed Essar Steel India Ltd's appeal seeking a stay on insolvency proceedings initiated by debtor banks at the National Company Law Tribunal (NCLT), saying the Reserve Bank's list of companies with high non-performing loans discriminated against the company.

The steelmaker had sought quashing of the RBI order that directed banks to initiate bankruptcy proceeding against 12 defaulting debtors, companies including Essar Steel.

The ruling clears way for the central bank to start loan recovery process against Essar Steel and other defaulters under the amended banking rules that empower the RBI to tackle the country's bad debt issue by dealing directly with lenders and bring defaulters in the insolvency process.

Essar Steel had argued that it should have been given an opportunity to present its case before the Reserve Bank of India decided to include the company among 12 defaulters that would be referred to bankruptcy court.

RBI had last week told the High Court that there was no singling out of Essar Steel for initiating bankruptcy proceedings and that the company was only one among 12 companies that have piled up debt beyond their capacity to repay or even service.

In fact, RBI counsel Darius Khambatta pointed out that Essar Steel, which has defaulted on more that Rs40,000 crore of loans, has been grouped among is a list of 12 defaulters  with a loan of at least Rs5,000 crore and where more than 60 per cent of the loans have been classified as bad loans by banks.

Essar Steel owes lenders around Rs45,000 crore ($6.99 billion), of which Rs31,670 crore had become non-performing as of 31 March 2016.

Essar Steel has complained that it was unfairly singling out for bankruptcy proceedings under the National Company Law Tribunal and that it was not informed of the NCLT proceedings. The central bank instead accused the company of suppressing facts of the case.

The RBI counsel said Essar Steel's representative was present at a joint lenders' forum meeting.

The High Court had, however, asked the central bank to explain the part of its statement that read ''such cases will be accorded priority by the National Company Law Tribunal (NCLT)''.

RBI had issued a corrigendum on its 13 June circular that allowed insolvency proceedings against 12 high-risk companies at the National Company Law Tribunal (NCLT) after the high court's stay on the creditors' move to retrieve lost money effectively halted the government's and RBI's efforts to ease banking sectors bad loan problem.

Reacting to the judgement, Essar Steel said the High Court while disposing of the petition has indicated that all issues referred by the company to the court should be considered by the NCLT before taking any decision on merits.

Essar had pointed to facts, including ''… advanced stage of discussions with lenders on its debt resolution proposal, payment of Rs3,467 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 as we apprehended that referring the company to the IBC at this stage may result in deterioration of the company's operations and in fact, may delay the resolution discussion with the banks,'' in its petition, according to the company.