Beena Parmar Moneycontrol News
The Gujarat High Court on Wednesday heard the Reserve Bank of India (RBI) against the plea by Essar Steel challenging the banking regulator's directive to lenders to refer the debt-laden company to National Company Law Tribunal. It will continue hearing the cast tomorrow when it is expected to deliver its verdict.
CNBC-TV18 reports suggest that the central bank presented its case today said saying it is not treating Essar Steel differently but following a statutory process to resolve the NPA (non-performing asset) mess and the company was far from reaching its restructuring stage. If Essar claims it has a resolution plan already, the turnaround story will be considered in the insolvency proceedings at the the National Company Law Tribunal (NCLT).
In many ways, the verdict will have a bearing on the future course of resolution proceedings under the IBC.
The central bank said that the previous insolvency process delayed the resolution while the new IBC aims at quick resolution and recovery of NPAs
On Friday last week, the High Court had adjourned the case to July 12 after hearing out the lawyers of Essar Steel.
Experts believe that the verdict could favour the regulator as the company is focussing on technical gaps to delay the legal action against them.
Lawyers also believe that RBI could come out winning in this case as the bankruptcy code makes it clear that no civil court could get to weigh in on the matter.
As per the ordinance, if NCLT (National Company Law Tribunal) admits it, it can only further be contested with the National Company Law Appellate Tribunal (NCLAT) and further be moved to the Supreme Court.
Last month, the RBI had directed Essar Steel lenders to refer the debt-laden steel company to the NCLT for insolvency proceedings. Essar had moved the court against proceedings and a special bench on July 4 had posted the case for hearing on July 7. The RBI was also ordered to file its reply by then.
Essar Steel is among the 12 stressed companies that the RBI has identified to be taken to the insolvency courts on priority basis.
On June 13, the RBI’s internal advisory committee (IAC) recommended for IBC reference all accounts with fund and non-fund based outstanding amount greater than Rs 5,000 crore, with 60 percent or more classified as non-performing by banks as of March 31, 2016.
The debt-ridden steel producer had questioned the cut-off date of March 31, 2016 fixed by the RBI for selecting those 12 accounts.
Meanwhile, foreign lender Standard Chartered Bank had also demanded that the Essar's request to stay the proceedings be quashed.
However, the high court's single-judge bench had asked the RBI to submit its reply on the matter and ordered the NCLT to hold back insolvency proceedings until the next hearing.
Essar Steel, with a debt of about Rs 42,000 crore, had contended before the court that after months of negotiations with its lenders, the company had reached a settlement with the creditors.
The company was trying to restructure the package approved by its board of directors but before any concrete decision was arrived at with the creditors, RBI released the circular on June 13 to take it to the insolvency proceedings.
Essar Steel has demanded that the overseeing committee (independent 5-member panel set up by RBI) take into account its interest payments of Rs 3,500 crore to the lenders, higher capacity utilisation at 80 percent in its steel plant and a resultant 42 percent rise in its earnings before interest, tax, depreciation and amortisation (Ebitda) in FY17.
The steel producer has also stated before the court that RBI has given six months’ time to many other large defaulters to come clean and that they should also be given the same opportunity.
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