Gujarat HC denies relief to Essar Steel in insolvency case

Gujarat HC raps RBI for giving directions to NCLT

Gujarat HC raps RBI for giving directions to NCLT

The Gujarat High Court on Monday dismissed Essar Steel's writ petition challenging the Reserve Bank of India (RBI) directive to a consortium of banks to initiate insolvency proceedings against the company for its high non-performing assets.

Essar Steel was referred to the NCLT despite the fact that it was in an advanced stage of finalising a restructuring proposal in accordance with earlier RBI circulars, it argued.

The company has objected to being clubbed with 11 other defaulters.

On July 5, Essar Steel had moved Gujarat High Court challenging the RBI's insolvency move against the company at the National Company Law Tribunal (NCLT).

Essar Steel's creditors may now proceed with the insolvency proceedings at the NCLT, provided that this decision isn't appealed against before a Division Bench of the High Court.

A single bench of justice SG Shah pronounced the order which was reserved after a detailed hearing last Friday. They will take a decision in a day or to as time is a critical factor in this. Today's verdict means that lenders, led by State Bank of India (SBI), can begin bankruptcy proceedings under the NCLT against the company. You can not play games with the court. "It can not be held that directives of RBI under reference by impugned press release are binding upon SCB 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% interest". It was then argued "the initiation of proceedings under the Bankruptcy Code results in coercive steps including mandatory suspension of the functioning of the Board of Directors and hands over of management to Insolvency Resolution Professional (IRP)". "This court is beingmisled", the RBI lawyer had said. Essar even invoked Article 14 (equality before the law) and alleged the central bank had chosen it for IBC proceedings exclusively on the basis of its outstanding loan being greater than Rs. 5000 Crores with 60% or more classified as NPAs by banks as of March 31, 2016.

Essar Steel has a total debt on books at Rs 42,000 crore.

The RBI had in June asked lenders to start insolvency proceedings against 12 companies, as part of new powers it gained this year to help the country cut down on the more than $150 billion in stressed assets in the banking system.

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