The Gujarat High Court on Monday rejected a petition moved by Essar Steel challenging the insolvency proceeding initiated against it by lenders following a directive from the Reserve Bank of India (RBI). The court refused to give any relief to the company, stating that the company is in debt of more than Rs 45,000 crore for couple of years and its non-performing assets (NPA) was more than Rs 32,000 crore last year.
“It is also clear that when total debt is more than Rs 45,000 crore, there is no option, but to leave the issue at the discretion of the lenders to take appropriate steps in accordance with law, thereby, without interference of this court under the constitutional mandate,” Justice S G Shah wrote in the order. Justice Shah was of the opinion that the adjudicating authority, National Company Law Tribunal (NCLT) needs to decide on its own based on facts that whether the insolvency petition is required to be entertained or not.
Essar had approached the court challenging a decision of the Reserve Bank, directing banks to initiate proceedings against 12 companies including the petitioner under the provisions of Insolvency and Bankruptcy Code, 2016. The company had sought quashing of the decision announced on June 13 in which it directed the lenders — State Bank of India, Standard Chartered Bank — for initiating insolvency proceedings. The petitioner company had also objected to the RBI release wherein it was stated that “such cases will be accorded priority by the National Company Law Tribunal.” According to the petition such directions can’t be issued to any court.
During the hearing, the RBI had admitted that this was a mistake and later issued a corrigendum while deleting the reference to NCLT. Justice Shah warned the central bank to be careful in future. The court brushed aside the argument of the petitioner firm that banking company is not entitled to initiate insolvency proceedings without the directions of the RBI u/s 35AA of BRA. The court also didn’t entertain the argument that the directives of the RBI under reference by impugned press release is binding upon SCB (Standard Chartered Bank) and therefore SCB is bound to consider the restructuring proposal by the petitioner, wherein petitioner has offered to start payment of dues only after 25 years and that too only with 1 per cent interest.
The steel company had said in the petition that it has operations in six locations which are all operational where the company has 4500 employees. The turnover of the company has been at an average of Rs 12,000 crore per year in the last two years and is estimated to be Rs 21,700 crore in 2018. The petition also stated that despite the existence of several laws and statutory circulars issued by the RBI for recovery, restructuring of NPA, the problem of NPAs in the country remained staggering.
After the judgment, Essar issued a press release stating, “Our request to the High Court was that in view of the specific facts of Essar Steel, i.e., advanced stage of discussions with lenders on its debt resolution proposal, payment of Rs 3,467 crore to banks between April 2016 and June 2017, and the substantial improvement in all operating parameters, the company should have been given time to complete its debt restructuring …” It further said, “in its judgment, the High Court while disposing of the petition has indicated that all of these issues should be considered by the NCLT before taking any decision on merits.”