Gujarat HC Dismisses Essar Steel's Petition Against RBI

Banks can now begin insolvency proceedings against Essar- India Tv

The Gujarat High Court on Monday dismissed a plea by Essar Steel India Ltd, which challenged a Reserve Bank of India order.

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.

Essar Steel owed lenders around Rs 45,000 crore, of which Rs 31,671 crore had become NPA as on March 31, 2016.

As a backdrop, on 13 June 2017, the RBI had issued a press release directing banks to initiate insolvency against 12 non-performing accounts whose collective exposure accounted for 25% of the country's bad loans.

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The High Court had, however, asked the central bank to explain the part of its statement that read "such cases will be accorded priority by the National Company Law Tribunal (NCLT)". 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. Essar Steel argued that it was not given adequate opportunity to present its position before the insolvency case was filed at the NCLT. Essar even invoked Article 14 (equality before the law) and alleged the central bank had chosen it for IBC proceedings exclusively on the basis of its outstanding loan being greater than Rs. 5000 Crores with 60% or more classified as NPAs by banks as of March 31, 2016.

In its defence, the RBI had clarified that Essar Steel was not the only company singled out for insolvency proceedings. At the time, lenders were already discussing a restructuring plan approved by the company's board, it said. The company said it was not, for instance, a willful defaulter, that it had in fact paid Rs 3,467 crore back to banks and financial institutions over the previous 15 months and that its debt was in any case in the process of being restructured - in other words, the IBC proceedings would jeopardize this process of restructuring and repayment of the loan. In addition, the apex bank has also appointed advocates Amar Bhatt and Rajendra Barot. Standard Chartered Bank had also moved the NCLT against Esaar.

Essar Steel had moved court against the June 13 RBI circular contending that RBI's decision to select the steel producer among the 12 NPA accounts as arbitrary while the firm was in an advanced stage of loan restructuring.

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