Essar Steel was far from reaching its restructuring stage, the Reserve Bank of India (RBI) told the Gujarat High Court on Wednesday. The central bank said it did not treat the company differently and said it has followed a statutory process to resolve the bad loan issue.
The central bank’s assertion was made during a hearing for a case filed by Essar Steel against it. Appearing on behalf of the RBI, advocate Darius Khambata said, “Essar Steel is very far from completing its restructuring and we will substantiate it. If Essar claims it has a resolution plan already, the turnaround story will be considered in the insolvency proceedings at the National Company Law Tribunal (NCLT).”
Khambata informed the court that although the previous insolvency process delayed the resolution of such cases, the new Insolvency and Bankruptcy Code (IBC) aims at quick resolution and recovery of non-performing assets (NPAs). He maintained that speedy recovery of NPAs was a matter of economic regulation through which the government was trying to improve the economy.
The focus of the government, the RBI counsel argued, was to recover economic value and the IBC provides a comprehensive matrix for restructuring debt and avoids winding up of debt-laden companies. “It is a time-bound process, which completely protects the interests of management,” he said, adding that all defaulters were being taken through the same process for speedy resolution of NPAs.
On July 4, the high court had issued a notice to the RBI seeking an explanation on why hearings for the 12 cases should be fast-tracked. On July 8, the central bank issued a corrigendum to clarify its original notification.
Meanwhile, Essar Steel’s counsel advocate Mihir Thakore argued on Wednesday that in such cases, a case to case analysis of each defaulter is required and not issuance of general orders. He went on to argue that powers vested with the RBI require the central bank to apply its mind and added that orders should be based on the objective sought to be achieved. He wondered why, if the objective was being achieved, a company of the scale of Essar Steel was being handed over to an interim resolution professional (IRP) as it could result in the company grinding to a halt.
Essar Steel had petitioned the Gujarat High Court on July 4 and said that the RBI took into consideration “irrelevant factors in determining the accounts to be referred under Insolvency and Bankruptcy Code and ignored all relevant factors” and also violated the principles of natural justice.
According to the petition submitted to the court, the RBI has arbitrarily taken a cut-off date of March 31, 2016, for determining the date for initiating the petition. “The decision has been taken in complete violation of principles of natural justice. If the petitioner had been given notice or would have been heard, the petitioner would have been able to present before the RBI that after March 31, 2016, there has been a sea change in the operations of the company as well as repayment of debt,” it had added.
The petition added that if subsequent events had been taken into account, “no reasonable person” would have come to a conclusion that the banks should be directed to file a petition under IBC against the company. State Bank of India and Standard Chartered Bank have filed separate applications with the Ahmedabad NCLT but these are yet to be admitted.
The total debt of Essar Group is estimated at Rs 1.17 lakh crore — Essar Oil debt at Rs 30,000 crore, Essar Steel at Rs 44,000 crore, Essar Power at Rs 20,000 crore and Essar Global Fund at another Rs 23,500 crore.