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The delay caused by one of the top loan defaulters Essar Steel challenging the action on them under Insolvency and Bankruptcy Code (IBC), could increase losses and reduce the chances of resolution, according to Rajnish Kumar, Managing Director of State Bank of India (SBI).
Essar Steel, one of the 12 large corporates, has been taken to courts by SBI-led banks on the Reserve Bank of India’s directives. It has challenged this directive in the Gujarat High Court halting the resolution process in the insolvency court National Company Law Tribunal (NCLT).
"Anybody has legal right or remedy in the country. You cannot deprive anybody of approaching the court…(But) If we delay, the losses increase and the chances of any resolution they become very dim. It is a much awaited reform that was needed. In any capitalist society, it is the survival of the fittest and you have to find the ways and means…" Kumar said on the sidelines of a banking event.
Essar Steel owes over Rs 37,000 crore to its lenders and was sent to the NCLT to bring a resolution in a time-bound 6-9 months period under the new law.
Kumar said, “As far as NCLT (National Company Law Tribunal) is concerned, the ecosystem is evolving, laws are evolving. On how to handle it, what are the legal issues...it will take some time in this country to evolve. It will be at least 6 months to a year when all these issues will be tested, courts will give their judgments. We are in the stage of evolution, it is a new law in this country. Let us have some patience.”
The RBI counsel at the Gujarat High Court has also presented that Essar Steel was “misguiding” the court and any order on restraining IBC proceedings will impact other 11 NPA accounts. Most of 12 companies are awaiting the verdict from Gujarat High Court for further action after being sent to the NCLT.
On Thursday, the high court asked RBI to submit documents supporting its June 13 directive to refer 12 large corporate NPA (non-performing assets) accounts as priority for insolvency and bankruptcy proceedings. The court will hear the matter today, July 14.
The Ruia-family owned steel firm had argued that it was not given enough opportunity to present its position before the insolvency case was filed at the NCLT. At the time, lenders were already discussing a restructuring plan approved by the company’s board and it required six months to implement it.
However, the central bank has said that its action against Essar Steel is “neither unjust nor outrageous” and lenders were nowhere close to extending a recast plan.
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