The two RBI accredited rating agencies — CARE and SMERA — had done the credit rating and assigned BBB-rating (investment grade, signifying moderate degree of safety regarding timely servicing of financial obligations), it said.
The Supreme Court on Monday asked Jayaswal Neco Industries, the Reserve Bank of India (RBI) and others to maintain status quo in the insolvency process initiated against the company. “Maintain status quo”, Justice Ranjan Gogoi said, after senior counsel Harish Salve, appearing for Jayaswal, argued that that RBI failed to consider the Master Restructuring Agreement (MRA), which was approved by almost all the lenders, that was submitted in this regard. Jayaswal Neco was one of the 28 companies in RBI’s second list of corporate defaulters (June 13, 2017), and was given time till December 13, 2017 to finalise a debt resolution plan with its lenders.
Jayaswal Neco’s total debt (fund + non-fund) is around Rs 4,800 crore. As part of the restructuring deal which was worked out, the lenders would have had to take a haircut of Rs 500 crore. Of the remaining serviceable debt, the company had committed to repaying 73% of the dues. The remaining 27% were to be converted into equity for the lenders. A majority of the lenders had approved this plan on December 12. However, the plan was rejected by RBI. Seeking to implement its debt restructuring plan and save itself from insolvency proceedings, Jayaswal, the manufacturer of iron and steel and ferrous and non-ferrous casting products, alleged that it was being pushed into the insolvency and bankruptcy proceedings. It said that 10 out of 12 lenders (constituting 92% of the lenders by value) had signed and executed the MRA on February 12, 2017. The two RBI accredited rating agencies — CARE and SMERA — had done the credit rating and assigned BBB-rating (investment grade, signifying moderate degree of safety regarding timely servicing of financial obligations), it said.
“Promoters have brought in upfront contribution of Rs 100.38 crore, thereby satisfying all the requisite conditions stipulated by RBI, still RBI had for erroneous and hyper technical reasons directed the bank to initiate Insolvency proceedings against the company,” Jayaswal said in its appeal filed through counsel Mahesh Agarwal. It also raised various technical issues in its appeal.
The matter came to the Supreme Court after Jayaswal Neco challenged the Bombay High Court’s March 3 order that dismissed its plea while holding that RBI’s mandate and requirements had not been met by it under the stipulated deadline of December 13, 2017. RBI had told the HC that the MRA was not signed by all lenders, rating of a full service credit rating agency, SMERA Ratings, could not be accepted as it was not one of the top five accreditation agencies and that the firm had not brought in upfront promoters’ contribution before the proposed deadline.
Jayaswal said the criteria that the MRA has to be signed by all the parties is completely contrary to RBI’s May 22 circular where it kept the thresholds much lower and allowed an exit to the dissenting lenders. It is Jayaswal’s plea that it went ahead with formulating a debt resolution plan on the basis of the extant guidelines and were able to arrive at a MRA on December 12, 2017, which was signed by 92% of the lenders.
The RBI on May 22 had published a circular stating that a decision agreed upon by minimum 60% of creditors by value and 50% of the creditors by number in Joint Lenders Forum (JLF), would be considered as the basis for deciding the Corrective Action Plan and will be binding on all lenders. It also permitted an exit to the dissenting creditors under this circular. At the same time, it also indicated that a committee will evaluate cases that need to be referred to the IBC.
(With inputs from Shamik Paul