Bhushan Steel insolvency case: NCLT reserves order on SBI plea on recovery of dues
New Delhi: The National Company Law Tribunal (NCLT) has reserved its order in the matter between State Bank of India (SBI) and Bhushan Steel Ltd regarding recovery of dues amounting to Rs43,000 crore.
The SBI on Thursday moved the NCLT against Bhushan Steel, claiming the company had defaulted on loans of over Rs43,000 crore.
The application came in view of the bank’s statutory rights under the Insolvency and Bankruptcy Code (IBC) to recover its dues.
Arguing for the acceptance of the application, the lawyer for SBI said, “A total of INR 3210 crores and INR 4295 under rupee term loan has been disbursed as of June 30, 2017. Revival letters have been given by SBI wherein INR 6525 crores are due for 3 SBI subsidiaries after amalgamation. Acknowledgement of the debt, and default letters for an amount of 4000 crores have also been submitted.”
She said that, in furtherance of “Sections 4 and 3(12) of the Insolvency and Bankruptcy Code (IBC), it is in the interest of the banks that the resolution process begin at the earliest, in a time bound manner.”
The SBI lawyer also made a reference to the RBI directive for recovery of dues from these mega defaulters. She, however, also pointed out that “reliance on various RBI notifications is irrelevant”. She informed the tribunal that “statutory remedy has already been exercised and they are now before the NCLT for seeking redressal”.
She further submitted that “there is mandatory proof for the debt” as well, and that in their own replies it is not disputed that there is a debt outstanding.
The NCLT chairperson observed in favour of the banks that “the RBI Directive is irrelevant. To recover your dues is a statutory right”, highlighting the independent nature of these proceedings.
Highlighting the generously sad state of affairs of the banking industry, he said, “This happens only in India that a loan is advanced to someone to process interest payments.”
The lawyer for Bhushan Steel submitted, “In the declaration form there is close to Rs100 crore difference in the default amount, whereas, as per Section 75 of the IB Code, material facts should have been revealed and they have been omitted despite the knowledge of them being material. There has to be some sanctity for the exercise of powers of NCLT as the adjudicating authority.”
Bhushan Steel with reference to a Working Capital Consortium Agreement between the two entities, submitted that “the working capital becomes payable only when there is a recall or demand for payment”, and that the principal amount of the debt constitutes 65% of the working capital.
“There is a difference between debt and default— the entire amount has been shown as a default, even though no default notice was served about the working capital,” he said.
He also referred to two orders of the National Company Law Appellate Tribunal (NCLAT), wherein if there is no default or there are misleading statements, the application has to be rejected.
In reply to the objections raised on behalf of Bhushan Steel, SBI argued, “Merely allowing the cash credit account to operate in order to not choke the company does not imply that SBI is now not entitled to recover its dues.”
Earlier, the government had amended the RBI Act, giving powers to the Reserve Bank of India (RBI) to direct banks to take punitive action against individual accounts under IBC that covered about 25% of the banking system’s non-performing assets (NPAs). Giving effect to this new law, the RBI issued a directive for kick-starting the process of recovery of dues owed by these mega defaulters to various banks.
The gross bad debt of the Indian banking system as of March was at Rs7.11 trillion, which means the 12 accounts would be responsible for about Rs1.78 trillion.