Gujarat HC dismisses Essar plea challenging insolvency proceedings

Paterniano Del Favero
Luglio 17, 2017

The Gujarat High Court on Monday disposed of the petition moved by Essar Steel challenging the insolvency proceeding against it by Reserve Bank of India without granting any relief to the company.

An RBI circular last month asked the banks to initiate action against Essar Steel and eleven other firms with over Rs 5,000 crore of outstanding loans each under the IBC.

In its defence, the RBI had clarified that Essar Steel was not the only company singled out for insolvency proceedings.

The High court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea.

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.

The RBI later issued a corrigendum to the press release and deleted the statement.

Essar Steel claimed that it's financial health had improved during the financial year 2016-17 and it no longer required to be a part of the 11 other NPAs as declared by the RBI and that it deserved to be a part of the other 488 cases that have been provided given six months to restructure. Shares of most of the nine listed companies out of the 12 on the RBI's list are on a downtrend since then. He had said the company was challenging RBI's directive, not SBI's decision, as the state bank was mandated by the central bank to file a case with NCLT against the firm by issuing that circular. Today's verdict means that lenders, led by State Bank of India (SBI), can begin bankruptcy proceedings under the NCLT against the company.

Though the Insolvency and Bankruptcy Code is in force since December 2016, the lender banks did not opt for insolvency proceedings because they knew it would "jeopardise company's operations" as suppliers may stop supplying material on learning about such action, Thakore said. Essar Steel has a total debt at Rs. 42,000 crore to these banks. Meanwhile, bankruptcy proceedings have also been filed on Essar Steel Ltd and Monnet Ispat and Energy Ltd. "This court is being misled", the RBI lawyer said.

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