Lenders to Essar Steel Ltd are considering withdrawing the case against the former promoters of the company filed at the Debt Recovery Tribunal, following the settlement of dues, according to two bankers aware of the matter.
Earlier this year, lenders led by State Bank of India (SBI) approached the tribunal in Ahmedabad with a recovery suit against Prashant Ruia and Ravi Ruia to encash personal guarantees worth ₹15,000 crore extended by them.
Lenders believe that they may look at a settlement with the former promoters as they have been able to recover their outstanding dues of over ₹39,000 crore from the new owner ArcelorMittal after a legal battle that lasted for two years. The company has settled its entire debt with the lenders, rendering the personal guarantees null and void.
“We got a good settlement. What more do we need? In a court of law also, we are not in a strong position. Promoters would argue that they have sold everything to settle the case," said one of the two bankers mentioned earlier. “While this is a general feeling, we are yet to come to a conclusion," said the banker.
SBI is in the process of transferring the dues to other lenders as it received full payment from ArcelorMittal. Among the lenders, SBI has an exposure of ₹12,161 crore, Edelweiss ₹7,636 crore and Canara Bank ₹3,493 crore.
“If the promoters coordinate with other companies, then banks may look at a consent agreement with them, which could include settlement via cash or other ways. When you are getting so much money, we need to see if we want to fight with the guarantor," said the second banker.
SBI chairman Rajnish Kumar told Mint that a final decision is yet to be taken on this.
In November, the Union cabinet made an amendment to the Insolvency and Bankruptcy Code to include personal guarantees issued by corporate promoters to speed up the recovery process and to give lenders leverage against errant borrowers.
A lot of lenders pursue personal guarantees so that in the future, there are no questions raised by the Central Vigilance Commissioner (CVC) on why they didn’t recover money this way, according to Krishnava Dutt, managing partner at law firm Argus Partners. However, the decision to withdraw the case against the promoters is entirely the prerogative of the lenders.
“They might choose not to pursue because they believe they have got the maximum recovery possible through the IBC, or maybe they may want to pursue other business opportunities with the guarantor. It may also be possible that the lender believes that the guarantor doesn’t have the money to pay back and pursuing litigation would a futile exercise. It could be any number of reasons and this rests on the commercial judgement of the lenders. The decision is taken not from a legal perspective but from a commercial perspective, whether a lender wants to take the foot off the gas pedal. Having said that, there may be instances where PSU lenders may want to pursue against the guarantors to avoid being questioned by CVC in this regard," he Dutt said.
Meanwhile, the Ruias, who control the Essar group, are also subject to recovery cases filed by lenders to Essar Power, a thermal power producer that is also bankrupt. ICICI Bank and IDBI Bank have moved various benches of the debt recovery tribunal and invoked personal guarantees provided by the promoter.