RBI can’t demand priority for loan defaulter cases at NCLT, says court
RBI to issue a corrigendum. Gujarat high court adjourns Essar Steel case till 12 July even as firm argues lenders can’t approach NCLT as debt restructuring is not complete
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Ahmedabad: The Gujarat high court on Friday objected to the Reserve Bank of India (RBI) saying that the National Company Law Tribunal (NCLT) would accord priority to bankruptcy proceedings it has recommended against Essar Steel Ltd and 11 other loan defaulters.
RBI lawyers replied that it was a mistake in drafting a statement that had recommended expediting the proceedings at NCLT, adding that it would issue a corrigendum withdrawing the line.
The high court’s observation and the response by RBI lawyers came on a day the court adjourned until 12 July a case filed by Essar Steel against the central bank recommending the launch of bankruptcy proceedings against the company.
In a 13 June statement, RBI said “such cases will be accorded priority by NCLT”.
The adjournment halts further proceedings on an insolvency petition filed against Essar Steel at the Gujarat bench of NCLT until after 12 July, and leaves the fate of RBI’s debt resolution exercise in the balance.
RBI has recommended bankruptcy proceedings against a total of 12 loan defaulters, which account for a quarter of the non-performing assets (NPA) clogging up India’s banking system.
The company told the court that it had faced a serious downturn in its steel business in the past on account of a shortage of gas supply for its factory located in Hazira, Gujarat, and also other economic factors, including dumping of steel by makers of the alloy from countries like Russia, China, South Korea and Taiwan.
Laywer Mihir Thakor, who appeared for Essar Steel, claimed that the company was on the path of recovery. The plant is working at 80% capacity and the company has annual turnover of about Rs20,000 crore, he said. The company had cleared debt to the tune of Rs3,467 crore in the past one year, added Thakor.
RBI, after receiving sweeping powers to resolve bad loans through an amendment to the Banking Regulation Act, directed banks to refer the 12 identified cases directly to NCLT for resolution under the Insolvency and Bankruptcy Code.
RBI’s criterion was that the total banking exposure of the company should be at least Rs5,000 crore and 60% of this exposure should have turned non-performing by March 2016.
State Bank of India (SBI), one of the petitioners in the case, said a plan for restructuring Essar Steel’s debt had not been finalized as the bank, which leads a consortium of 22 creditors, had found several issues with the firm’s proposal.
Essar Steel’s legal representatives contended that the Joint Lenders Forum had not rejected the company’s restructuring plans either, which were at an advanced stage of negotiations. The company was trying to restructure the package approved by its board of directors, they said.
Thakor argued that SBI or any other member of the Joint Lenders Forum could not approach NCLT as the debt restructuring process had not been completed.