Essar Steel vs RBI: Gujarat High Court postpones hearing case to July 12

Meanwhile, foreign lender Standard Chartered Bank had also demanded that the Essar's request to stay the proceedings be quashed.

However, on July 4, adjourning the hearing till July 7, the high court's single-judge bench had asked the RBI to submit its reply on the matter even as it ordered the NCLT to hold back insolvency proceedings until the next hearing.

Essar Steel argued its case on Friday while the RBI will now respond on July 12.

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 5000 crore, with 60 percent or more classified as non-performing by banks as of March 31, 2016.

Lawyers say that this will have to be fast-tracked and the order may be in favour of the RBI because it has been said that the bankruptcy code is clear that no civil court shall entertain any such 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 to the Supreme Court.

"High courts under writ or supervisory jurisdiction have no power to interfere in such matters. All these efforts have been tried by borrowers previously," said Manoj K Singh, founding partner of law firm Singh & Associates.

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, a notification in the form of a press release on June 13 by the RBI classified a few companies whose accounts are disclosed as non-performing assets (NPAs).

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 amortization (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. The company has over Rs 37,300 crore debt that was first restructured under CDR (corporate debt restructuring) in 2016 and then under the Joint Lenders Forum in January 2017.

“Technically, it is a good line of argument. RBI/banks cannot take 31 March 2016 date as the cut-off date and ignore the fact that the company has repaid Rs 3,467 crore in one financial year” said Prem Rajani, managing partner at law firm Rajani Associates.

"As regards the powers of the RBI to identify 12 companies, in my view, because there has been an amendment pursuant to the banking regulation ordinance, the RBI has the prerogative to cherry-pick an account. It empowers the RBI to do so to direct banks to file cases against defaulters. A defaulter cannot say 'Why me? There are other defaulters too'," he added.