Essar Steel case: RBI has no additional document to support IBC order
RBI, only through a media statement, had directed banks to refer 12 bad loan cases—including Essar Steel—to NCLT for resolution under Insolvency and Bankruptcy Code
Ahmedabad: The Reserve Bank of India (RBI) on Friday admitted it had no additional documents to produce before the court to support the decision-making process that went into a 13 June announcement in the form of a media statement.
RBI, through the statement, had directed banks to refer a dozen loan defaulters to the National Company Law Tribunal (NCLT) for speedy resolution under the Insolvency and Bankruptcy Code.
Essar Steel, one of the 12, has challenged the RBI directive in the Gujarat high court, which is likely to rule on the matter on Monday.
In its petition before the court, the company said that it had initiated debt restructuring and was on the path to recovery when the central bank issued the statement.
Essar Steel said the decision was “arbitrary” in nature and challenged RBI’s move to include it among the 12 defaulters, which make up a quarter of the Rs10 trillion in stressed assets clogging India’s banking system.
RBI’s senior counsel Darius Khambata said in his submission to the court that the 13 June press statement was based on the recommendation of a high-level internal committee and that the central bank had no documentary evidence to produce other than the press release itself to support the decision.
On Thursday, justice S.G. Shah, who is hearing the case, had noted that neither the petitioner nor the respondents had submitted the original directive by RBI or the supporting documents that were used as the basis for issuing it.
RBI’s criteria for selecting the dozen defaulters was that each of them owed at least Rs5,000 crore to banks and 60% of it had turned non-performing by 31 March 2016.
Essar Steel owed lenders around Rs45,000 crore, of which Rs31,671 crore had become non-performing as of 31 March 2016.
Khambata told the court that Essar Steel had tried to suppress facts and made false statements while filing the petition. He said the petitioner was well aware of the insolvency proceedings that were being initiated against it.
Mihir Thakore, senior counsel for Essar Steel, said that in a meeting of the joint lenders’ forum (JLF) on 13 June, the core committee had only discussed the contours of a debt restructuring proposal and highlighted 22 open issues that needed to be resolved before a package was finalized. JLF had not considered the option of initiating insolvency proceedings, he said.
State Bank of India (SBI) and Standard Chartered Bank are also respondents in the petition that has been filed by Essar Steel. SBI leads a consortium of 22 banks under JLF that was formed for corporate debt restructuring of Essar Steel.
Thakore claimed that even Standard Chartered Bank’s decision to approach NCLT on 27 June was based on RBI’s directive. He said both banks had been in discussions with Essar Steel to reach a restructuring agreement that did not finally take shape because of the RBI directive.
Standard Chartered Bank’s counsel Kamal Trivedi said the London-based bank had been needlessly dragged into the case, noting that it was neither a part of JLF nor was its decision based on the RBI directive. He said the bank had lent $450 million to a Mauritius-based subsidiary of Essar Steel and the promoters of the steel maker were guarantors.
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