Banks have decided to initiate insolvency proceedings against three steel companies, including Essar Steel, at the National Company Law Tribunal (NCLT) following a directive from the Reserve Bank of India (RBI) under the Insolvency and Bankruptcy Code, 2016.
According to a banker, Bhushan Steel, Electrosteel Steels and Essar Steel cases were taken up at a meeting of bankers and they decided to start the insolvency proceedings. The decision was taken by a consortium of 20 banks led by State Bank of India, India’s largest bank, at a meeting in Mumbai on Thursday. Essar Steel has a debt of over Rs 37,000 crore, Bhushan Steel Rs 44,000 crore and Electrosteel Steels Rs 10,000 crore. “The cases are likely to come up in NCLT by the end of July or early September,” said a banking source.
Bankers had recently decided to start bankruptcy proceedings against four companies, including Lanco Infratech and Monnet Ispat. Banks are expected to take up the remaining five companies in the coming days.
When contacted, an Essar Steel official did not comment about the development.
The Internal Advisory Committee (IAC) of the RBI recommended for IBC reference all accounts with fund and non-fund based outstanding amounts in excess of Rs 5,000 crore, with 60 per cent or more (Rs 3,000 crore or more) classified as non-performing by banks as on March 31, 2016.
The RBI asked banks to discuss the accounts named by the RBI before referring them to the National Company Law Tribunal. As these are large accounts and involve many banks, they will try to take a common view on all administrative requirements before referring these accounts to the NCLT. Banks will also decide on appointment of insolvency professional (IP) who will later decide on the resolution plan and submit it to the lenders for their consideration.
Steel companies account for 50 per cent of 12 large corporate defaulters identified by the Internal Advisory Committee of the RBI for insolvency proceedings. The total debt of 12 companies is estimated to be around Rs 2.5 lakh crore.
Once the case is referred to the NCLT under the Insolvency and Bankruptcy Code, an interim insolvency professional is appointed and will take control of the assets and form a creditors committee.
The committee will appoint a resolution professional to oversee the process and could change management of the debtor. The committee also has to come up with a resolution plan (approved by 75 per cent majority of the creditors) or decide to liquidate the assets. If the resolution plan is not accepted by the NCLT or no plan is formed within 180 days (it can be extended by 90 days), the company would go into liquidation.