The Gujarat High Court has dismissed Essar Steel’s petition against the Reserve Bank of India after giving the debt-laden company an interim relief earlier this month staying further proceedings in the bankruptcy process initiated on the firm.
The Gujarat High Court has dismissed Essar Steel’s petition against the Reserve Bank of India after giving the debt-laden company an interim relief earlier this month staying further proceedings in the bankruptcy process initiated on the firm. No relief will be given to the debt-laden company with respect to the Insolvency and Bankruptcy Code (IBC), the court said, according to TV news reports.
Earlier this month, Essar Steel moved Gujarat High Court challenging bankruptcy proceedings initiated by Standard Chartered against it. The Gujarat High Court awarded interim relief to Essar Steel, staying further hearings in Essar Steel case before Ahmedabad National Company Law Tribunal (NCLT), which is hearing loan recovery case proceedings initiated by the Reserve Bank of India.
Lenders breathe easy
Today’s high court decision might come as a relief to lenders, who got wary of the prospects of recovery from 12 biggest loan defaulters, as they feared the others may also move courts to stall bankruptcy proceedings and delay the retrieval after the interim relief to Essar Steel. A senior banker had told The Indian Express newspaper that even if the court judgment does not favour Essar Steel, other firms might also move high courts across the country to delay the proceedings.
Essar Steel, in its petition, had appealed that the RBI notification arrived even while the firm was trying to implement a board-approved restructuring package. It also said that it has repaid almost Rs 3,467 crore in last one year, adding that it employs 4,500 people and that if action was taken under the provisions of sections 7, 16 and 17 of the Insolvency and Bankruptcy Code (IBC), the administration of the company would go into hands of interim resolution professionals (IRP) and it would result in the closing down of the company.
Not targeting single company
On its part, the RBI contested in the court that it is not singling out Essar Steel for insolvency proceedings, and that all the big loan defaulters with outstanding loans above Rs 5,000 crore would be subject to the same.
Essar Steel is one of the dirty dozen — the 12 accounts with large unresolved NPAs (non performing assets) which the Reserve Bank of India has identified for speedy action on recovery of dues. The central bank has already directed the lead banker IDBI Bank to initiate insolvency proceedings on Lanco Infratech, which has about Rs 18,000 crore in unpaid dues. Meanwhile, bankruptcy proceedings have also been filed on Essar Steel Ltd and Monnet Ispat and Energy Ltd.
Earlier May, the government notified an ordinance for speedy resolutions of NPAs in efforts to deal with the problem of India’s chronic bad loans, which have surged to to Rs 9.63 lakh crore. According to the RBI, top 12 bad loan accounts make up for Rs 2.5 lakh crore of bad debts, or 25% of the total. The ordinance gave powers to the RBI to direct banks to initiate bankruptcy proceedings against bad debt accounts under the Insolvency and Bankruptcy Code 2016 (IBC). Shares of most of the nine listed companies out of the 12 on the RBI’s list are on a downtrend since then.