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Wednesday, January 19, 2022

Gujarat HC refuses to stop proceedings against the Ruias

Upon pronouncement of the verdict, the petitioners requested a stay on the operation of the verdict for four weeks, which was granted by the court saying the DRT “shall not proceed with the hearing” for the said period.

By: Express News Service | Ahmedabad |
December 17, 2021 2:00:03 am
Taking note of the state’s submission, the court of Justice Nikhil Kariel Thursday directed the respondents to "reinstate the petitioners". (File)

The Gujarat High Court Thursday refused to issue a writ of prohibition to the Debt Recovery Tribunal (DRT) for proceedings initiated by the State Bank of India against Essar Steel India Limited (ESIL) promoters — Prashant and Ravi Ruia — for recovery of debt to the tune of Rs 273 crore from each.

“There is a likelihood of serious injustice being caused to the bank by preventing a statutory forum from exercising the powers conferred on it by law without there being strong or convincing grounds for issuing such a prohibition,” the court said in its verdict. The judgement pertains to a petition moved by the Ruias that sought to issue a writ of prohibition against the DRT from proceeding further with SBI’s application.

The plea said the proceedings were not maintainable as the tribunal had no jurisdiction to proceed against the promoters in their capacity as guarantors because the entire debt of SBI came to be assigned to ArcelorMittal (which acquired ESIL) because of which the personal guarantees furnished by the Ruias now cannot be enforced by the bank. The promoters argued that the moment the public sector lender transferred the debt, the principal borrower, that is ESIL, ceased to be SBI’s borrower and instead, ArcelorMittal became the borrower.

SBI had, however, argued that the mere assignment of debt by itself may not absolve the ESIL promoters of their liabilities as guarantors and the law permits the bank to enforce the personal guarantees.
The bench of Justices JB Pardiwala and NR Mehta reasoned that a writ of prohibition is required to be issued when an inferior tribunal exceeds its jurisdiction, which is not the case in the current matter.
“We are of the view that the tribunal should be allowed to look into all the relevant aspects of the matter, more particularly, the pivotal issue as regards the assignment of debt vis-a-vis the liabilities of the guarantors under the guarantees deed. The pivotal point raised by the writ applicants (the Ruias) is one for which detailed analysis has to be made by the tribunal itself even to find out as to whether the facts on record would clothe the tribunal with the necessary jurisdiction to decide the issues raised before it on merits,” it said.

The bench, however, clarified that its observations on merits in the case were only prima facie in nature and not a final opinion on the jurisdiction of the tribunal or “the pivotal issue of assignment of debt and its effects”.

Upon pronouncement of the verdict, the petitioners requested a stay on the operation of the verdict for four weeks, which was granted by the court saying the DRT “shall not proceed with the hearing” for the said period.

As promoters of ESIL, the Ruias had executed personal guarantees towards various credit facilities availed by the company, which was the principal borrower. However, a Corporate Insolvency Resolution Process (CIRP) was initiated by the Ahmedabad bench of the National Company Law Tribunal (NCLT) on August 2, 2017, following an application by SBI under provisions of the Insolvency and Bankruptcy Code, 2016.

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