Essar Steel has moved Gujarat high court against bankruptcy proceedings initiated against it by banks, including Standard Chartered
Ahmedabad: The Gujarat high court on Wednesday adjourned a hearing on an appeal filed by Standard Chartered Bank against a single-judge bench’s interim order on a plea filed by Essar Steel Ltd seeking dropping of insolvency proceedings initiated against it by its creditors.
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.
On Tuesday, Essar Steel had approached the high court challenging the insolvency proceedings initiated against it before the National Company Law Tribunal by its lenders after being directed by the Reserve Bank of India (RBI) to do so.
The court posted the Essar Steel case for hearing on 7 July, directing NCLT to adjourn any case listed before it against Essar Steel until this date.
Advocate Kamal Trivedi, who appeared on behalf of Standard Chartered Bank, said the bank had lent about Rs3,400 crore to Essar Steel and that the lender was not part of the Joint Lenders Forum led by State Bank of India that has been negotiating business restructuring with Essar Steel.
Trivedi argued that the bank had approached the Ahmedabad bench of NCLT as per the central bank directives and that the hearing in the matter was to be held on 6 July. He appealed to the court to allow the NCLT proceedings to be held on schedule.
Trivedi said that of the Rs3,467 crore debt claimed to have been cleared by Essar Steel in 2016-17, Standard Chartered had not received any money.
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).
Essar Steel questioned the cut-off date of 31 March 2016 fixed by the RBI for selecting the 12 accounts for resolution under the IBC.
“The Gujarat HC’s interim order on July 4, in my view, has been passed for two reasons -- one being that there seems to be some confusion about what is the effective date for the RBI notification to take effect (and therefore on what date the loan situation of the company should be considered problematic) and two, the RBI asking NCLT to take up the cases of these defaulters expeditiously," said Alok Prasanna Kumar, visiting fellow at the Vidhi Centre for Legal Policy, an independent advisory group.
Advocate Mihir Joshi, who appeared on behalf of Essar Steel on Wednesday, said that after 15 months of negotiations with its lenders, the company had reached a settlement with the creditors.
He said that Standard Chartered was not part of the Joint Lenders Forum that contributed 75% of the company’s loans and had been formed as per insolvency and bankruptcy code (IBC) guidelines.
He argued that Standard Chartered’s lending to Essar was in the form of a corporate guarantee and it was not a secured creditor.
“The court’s concerns are valid - has the RBI’s circular been drafted in a legally valid manner and without arbitrariness, and whether the RBI is trying to influence the NCLT into giving such cases preference. While the latter is for the RBI to explain and hopefully dispel any notion that they were trying to ask for special treatment for certain cases, the former may be a genuine issue which needs to be addressed judicially. It may be that Essar is the only one affected by the effective date of the press circular because of the specific facts placed on record, but the larger legal issue could also be clarified - when is the press release supposed to take effect," Kumar said.
As per the IBC, once an application filed by a financial creditor is admitted by the NCLT, a moratorium period of 180 days commences. During this moratorium period, the board of the defaulting entity is replaced by a resolution professional, who discharges the functions of the board till the time the resolution process is completed.
Joshi said that once an application by any of the creditors is admitted by NCLT, their plans for corporate restructuring would be severely affected.