Guj HC junks Essar Steel plea against RBI's insolvency order

Xavier Trudeau
Juillet 17, 2017

What could be a big boost for the government's drive against corporate bad loans, the Gujarat High Court today dismissed a plea by Essar Steel against the Reserve Bank of India (RBI).

Essar Steel in its petition to the court had challenged a June 13 directive of RBI, in the form of a press release, in which the banking regulator directed banks to refer a dozen cases, including Essar Steel, directly to NCLT.

Essar Steel's creditors may now proceed with the insolvency proceedings at the NCLT, provided that this decision isn't appealed against before a Division Bench of the High Court. The Gujarat High Court awarded interim relief to Essar Steel, staying further hearings in Essar Steel case before Ahmedabad National Company Law Tribunal (NCLT), which is hearing loan recovery case proceedings initiated by the Reserve Bank of India.

On its part, the RBI contested in the court that it is not singling out Essar Steel for insolvency proceedings, and that all the big loan defaulters with outstanding loans above Rs 5,000 crore would be subject to the same. Standard Chartered Bank had also moved the NCLT against Esaar. Shares of most of the nine listed companies out of the 12 on the RBI's list are on a downtrend since then. The action, he argued, was a violation of his client's fundamental right to equality before the law and equal protection of the law under Article 14 of Constitution.

Essar Steel had moved court against the June 13 RBI circular contending that the order was improper as the firm was in an advanced stage of loan restructuring. They will take a decision in a day or to as time is a critical factor in this. "The company was aware about SBI's action". Meanwhile, bankruptcy proceedings have also been filed on Essar Steel Ltd and Monnet Ispat and Energy Ltd. Bad loans stood at Rs 1 lakh crore in 2015-16 and from their have peaked to Rs 6 lakh crore. You can not play games with the court. "This court is being misled", the RBI lawyer said. Rs 31,671 crore of the total sum had been deemed non-performing on March 31, 2016. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs 7,50,000 crore, which forms 5 per cent of the country's GDP.

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