May 27, 2018

Gujarat HC rejects Essar Steel plea against RBI's insolvency circular

17 July 2017, 05:17 | Darrell Baldwin

Gujarat HC dismisses Essar Steel's plea against RBI

Court. The court order sets the stage for Essar Steel’s creditors to proceed against the company in the National Company Law Tribunal under the Insolvency and Bankruptcy Code

The Gujarat High Court on Monday dismissed Essar Steel's petition that had challenged the Reserve Bank of India's (RBI) directive to banks for initiating insolvency proceedings against the company.

In a major win for the Centre and its war on corporate bad loans, the Gujarat HC has rejected Essar Steel's plea against the RBI. The apex bank has issued a release on June 13 directing the banks to start insolvency procedure against a dozen stressed companies including Essar.

The court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea.

Essar had also argued that proceedings could result in the company's demise when it was "almost in the stage of revival" and working to resolve its debt problems, according to court documents.

It wasn't very thoughtful of the RBI to have directed NCLT to accord priority to certain cases.

One of these 12 accounts was that of Essar Steel. Instantly acknowledging this error, the RBI told the Gujarat High Court that it would withdraw this line from the press release, and did so by the means of a corrigendum.

That RBI's decision in picking these 12 accounts was arbitrary inasmuch as no opportunity of being heard was provided to these companies that were being referred to. This goes up to Rs 10 lakh crore when those of private and other lenders are added on.

It should not be treated on par with the other 11 accounts because these accounts are now closed while Essar Steel is doing well with annual turnover of Rs 20,000 crore, the company said. Rs 31,671 crore of the total sum had been deemed non-performing on March 31, 2016.

RBI, which is the main respondent in the case, engaged renowned lawyer from Mumbai Darius Khambata, former additional solicitor general of India and Maharashtra advocate general. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs. 7,50,000 crore, which forms 5 per cent of the country's GDP.

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