Gujarat HC reject’s Essar’s plea against RBI’s insolvency order, steel major requests for time to complete debt restructuring

With the Gujarat High Court dismissing Essar Steel’s plea against RBI’s insolvency order, the company on Monday said it should have been given time to complete its debt restructuring.

Essar Steel further said it apprehended that bankruptcy proceedings at this stage may lead to deterioration of the company’s operations delay the resolution discussion with the lender.

“Our request to the high court was that in view of the specific facts of Essar Steel i.e. advanced stage of discussions with lenders on its debt resolution proposal, payment of Rs 3,467 crore to banks between April 2016 and June 2017, and the substantial improvement in all operating parameters, the company should have been given time to complete its debt restructuring,” it said.

“As we apprehended that referring the company to the the Insolvency and Bankruptcy Code (IBC) at this stage may result in deterioration of the company’s operations and in fact, may delay the resolution discussion with the Banks,” it added.

In its judgement, the high court while disposing of the petition has indicated that all of these issues should be considered by the National Company Law Tribunal (NCLT) before taking any decision on merits, it said.

“We respect the decision of the high court and will accordingly be raising these issues for consideration by the NCLT,” it said.

The Gujarat High Court today dismissed Essar Steel’s plea against the RBI directive to the banks to start insolvency proceedings against it, refusing to grant any relief to the steel major.

A bench of Justice S G Shah pronounced its verdict on the Essar Steel plea and refusing to accede to it, said its petition stands disposed of.

The steel company’s debt has increased to over Rs 42,000 crore.

Essar Steel had moved the high court challenging the RBI’s June 13 circular asking the banks to initiate action against the company and eleven other accounts (companies) with over Rs 5,000 crore of outstanding loans each under the Insolvency and Bankruptcy Code (IBC).

Essar’s contention was that this directive was improper in its case, as the company was in an advanced stage of loan restructuring.

The company had argued that it should not be treated at par with other eleven accounts, as while these accounts are now closed, Essar Steel is still doing well with an annual turnover of Rs 20,000 crore.

The RBI had last month identified 12 accounts (companies) for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of total NPAs of banks.

Essar Steel’s counsel Mihir Thakore had argued that the SBI and other lender banks under the Joint Lenders Forum may not have decided to approach the National Company Law Tribunal (NCLT) for insolvency proceedings had the RBI not issued such a circular.