The Reserve Bank of India (RBI) on Friday told the Gujarat High Court that it would issue a corrigendum to clarify its notification that noted the 12 cases identified for bankruptcy proceedings will be accorded priority at the National Company Law Tribunal (NCLT). The central bank’s statement came during a hearing for a case filed by Essar Steel against the RBI questioning the grounds on which it had accorded priority to the 12 companies to be referred to the NCLT. The central bank added the clarification will be notified before July 12, when the case will be next heard. The court had on July 4 ordered a stay on all proceedings against Essar Steel at the Ahmedabad NCLT. It also issued a notice to the RBI and sought an explanation on why hearing of the 12 cases should be fast-tracked. The RBI had on June 13 asked banks to refer a dozen troubled companies — with a combined debt of close to Rs 2.4 lakh crore — to the NCLT and said that “such cases will be accorded priority by the NCLT”. During the two-hour hearing, justice SG Shah took objection to the RBI’s stand that the NCLT was vested with the requisite powers to decide insolvency matters. The judge observed that the affected parties were free to approach the judiciary which had complete jurisdiction to hear such matters also. Questioning the NCLT’s insolvency powers whereby it appoints professional entities to manage insolvent companies, Shah jocularly commented that those with professional degrees may not necessarily be competent to run companies.
Essar Steel had petitioned the Gujarat High Court on July 4 and said that the RBI took into consideration “irrelevant factors in determining the accounts to be referred under Insolvency and Bankruptcy Code and ignored all relevant factors” and also violated the principles of natural justice. According to the petition submitted to the court, the RBI has arbitrarily taken a cut-off date of March 31, 2016, for determining the date for initiating the petition. “The decision has been taken in complete violation of principles of natural justice. If the petitioner had been given notice or would have been heard, the petitioner would have been able to present before the RBI that after March 31, 2016, there has been a sea change in the operations of the company as well as repayment of debt,” it said.
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The petition added that if subsequent events had been taken into account, “no reasonable person” would have come to a conclusion that the banks should be directed to file a petition under bankruptcy code against the company.
The company said that it has repaid almost Rs 3,467 crore in the last one year and added that it fears if action is taken under the provisions of sections 7, 16 and 17 of the IBC, the administration of the company would go into hands of interim resolution professionals (IRP) and it would result in the closing of the company. It added that it employs 4,500 people and the company would be “revived in view of serious effort by the company and the bank by settling the accounts suitably”.
Essar Steel, promoted by the Ruias, had, at a meeting last year requested banks to convert Rs 12,200 crore of loans into preference capital and equity shares. While Rs 9,000 crore was sought to be converted into preference shares to be redeemed after 12-18 years, the company had requested the remaining Rs 3,200 crore be converted into common equity. For the balance Rs 31, 800 crore, the company had sought a prolonged repayment period. Senior bankers had told FE such a deep restructuring proposal, if approved by the consortium, would amount to taking a haircut of nearly 30%.
The total debt of the Essar Group is estimated at Rs 1.17 lakh crore — Essar Oil debt at Rs 30,000 crore, Essar Steel at Rs 44,000 crore, Essar Power at Rs 20,000 crore and Essar Global Fund at another Rs 23,500 crore.