The interim relief to Essar Steel by the Gujarat High Court has begun to make lenders wary of the prospects of recovery from 12 biggest loan defaulters, which, they fear, may also move courts to stall bankruptcy proceedings and delay the retrieval. A senior banker recently 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.
Earlier this week, 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). The NCLT is to hear the cases on loan recovery proceedings initiated by the Reserve Bank of India.
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.
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.