Gujarat HC to hear Essar Steel versus RBI case today
Essar Steel has questioned the cut-off date of 31 March 2016 fixed by the RBI for selecting the 12 accounts for resolution under IBC. Here are other highlights of the case
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Ahmedabad: The Gujarat high court will on Friday hear Essar Steel’s plea against insolvency proceedings initiated against it at the National Company Law Tribunal (NCLT) by its lenders after being directed by the Reserve Bank of India (RBI).
A single-judge bench had on 4 July posted the Essar Steel case for hearing on 7 July while directing NCLT to adjourn any case listed before it against Essar Steel until this date. The court had also directed RBI to file a reply till then.
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“The interim order of the court was not a ‘stay’ in the strictest sense as it had only asked NCLT to adjourn the matter on the next day of the hearing, if the NCLT is taking up the case before 7 July,” according to Alok Prasanna, visiting fellow at the Vidhi Centre for Legal Policy, an independent advisory group.
The court’s interim order hasn’t called for the whole thing to stop as soon as the order is effective, he added.
Essar Steel had contended before the court that after months of negotiations with its lenders, the company had reached a settlement with the creditors.
The company was trying to restructure the package approved by its board of directors but before any concrete decision was arrived at with the creditors, a notification in the form of a press release on 13 June by the RBI came into the picture that classified a few companies whose accounts are disclosed as non-performing assets (NPAs).
RBI, after receiving sweeping powers to resolve bad loans through an amendment to the Banking Regulation Act, directed banks to refer 12 identified cases, including Essar Steel, directly to NCLT for resolution under the Insolvency and Bankruptcy Code (IBC).
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Here are the highlights of the case:
* Essar Steel has questioned the cut-off date of 31 March 2016 fixed by the RBI for selecting the 12 accounts for resolution under IBC.
* Essar Steel has also stated before the court that RBI has given six months’ time to many other large defaulters to come clean and that they should also be given the same opportunity. The company has over Rs42,000 crore debt that was first restructured under CDR (corporate debt restructuring) in 2016 and then under the Joint Lenders Forum in January 2017.
* The RBI is likely to present its case on Friday regarding the circular and prove that it was drafted in a legally valid manner and without any arbitrariness. RBI may also clarify when is the circular/press release supposed to take effect.
* The central bank may also have to explain whether it is trying to influence NCLT into giving such cases preference.
The central bank used a common criterion for shortlisting the 12 NPAs and asked lenders to the companies to file insolvency proceedings against them right away. The 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.
* Earlier this week, the Gujarat high court adjourned a hearing on an appeal filed by Standard Chartered Bank against the court’s interim order in the Essar Steel case. The Standard Chartered case was posted for hearing on 11 July by a division bench comprising Gujarat chief justice Subhash Reddy and justice V.M. Pancholi. The outcome of Essar Steel’s case on Friday will have a bearing on the Standard Chartered’ case.