In a major setback to Essar Steel that is set to go under bankruptcy proceedings initiated by the Reserve Bank of India (RBI), the Gujarat High Court on Monday dismissed a plea by the company challenging the proceedings under the Insolvency and Bankruptcy Code (IBC) at the National Company Law Tribunal (NCLT).
It wasn't very thoughtful of the RBI to have directed NCLT to accord priority to certain cases.
The Gujarat High Court's order clears the way for no further challenges by any of the companies going to insolvency courts on the grounds made by Essar Steel. "It can not be held that directives of RBI under reference by impugned press release are binding upon SCB and therefore SCB is bound to consider the restructuring proposal by the petitioner, wherein petitioner has offered to start payment of dues only after 25 years and that too only with 1% interest".
Earlier reports had put the amount that Essar Steel owes to banks at Rs 45,000 crore, of which Rs 31,670 crore turned non-performing os of March 31, 2016, Reuters said.
Essar Steel claimed that it's financial health had improved during the financial year 2016-17 and it no longer required to be a part of the 11 other NPAs as declared by the RBI and that it deserved to be a part of the other 488 cases that have been provided given six months to restructure. "The company was aware about SBI's action". You can not play games with the court.
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.
RBI had last week told the High Court that there was no singling out of Essar Steel for initiating bankruptcy proceedings and that the company was only one among 12 companies that have piled up debt beyond their capacity to repay or even service. Also, as RBI pointed out, the IBC process was not about winding up Essar Steel but was aimed at fast-tracking the restructuring process - RBI didn't say, but having the insolvency sword would force promoters to be more reasonable.
The court had asked the RBI to explain this, which was later deleted through a corrigendum followed by an affidavit by the apex bank. Also, has the Essar case being prolonged, this would have prompted other firms to approach courts across the country to try and delay the NCLT process.