Essar Steel on Monday sought dismissal of an application for insolvency proceedings at the National Company Law Tribunal (NCLT) in Ahmedabad on technical grounds. The company was referred to the bankruptcy court by State Bank of India (SBI) and Standard Chartered Bank last month. Essar Steel contended that the signatory of the application filed at NCLT did not have any authorisation of such powers by the SBI chairman. The counsel added that under Section 27A of the SBI Act, the chairman exercises all powers, subject to general or special directions given by the central board of the bank. “The signatory of the application does not carry any such authorisation as required under Section 27A of SBI Act. Therefore, the application by SBI is incomplete and not maintainable till the signatory is authorised,” the counsel argued. The case will again be heard on Tuesday.
Essar Steel owes lenders around Rs 45,000 crore, of which Rs 31,671 crore have become non-performing as of March 2016. The company argued that the appointment of an interim resolution professional (IRP) should be done separately and not simultaneously with the admission of the insolvency proceedings against it. “A separate hearing has to be given for appointment of the IRP, within 14 days of admission of application for insolvency proceedings,” the counsel contended, citing Section 16(1) of the Insolvency and Bankruptcy Code (IBC), 2016, which states that the adjudicating authority “shall appoint an interim resolution professional within 14 days from the insolvency commencement date”. Meanwhile, Standard Chartered Bank and SBI have named different IRPs for Essar Steel.
While SBI in its application suggested Satish Kumar Gupta of Alvarez and Marsal India as the IRP, Standard Chartered Bank suggested Dinkar Venkatasubramanian of EY. In its contention, SBI argued that since its consortium represented 93% of the lenders, the IRP suggested by the lead creditor should be appointed by the NCLT.
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Essar Steel’s Mauritius-based subsidiary had borrowed about Rs 3,400 crore from Standard Chartered Bank for which Essar Steel’s promoters were guarantors. The company defaulted in its payment and its proposal to repay the amount in 25 years’ time at 1% interest to the bank was not acceptable, Standard Chartered Bank’s counsel Kamal Trivedi had informed the court last week.
Once cases are admitted, lenders need to set up a committee of creditors that will come up with a plan on how the asset will be tackled. If the committee is unable to find a solution within 180 days — this can be extended to 270 days — the borrowing entity will go into liquidation.