Mumbai: The Gujarat High Court on Monday turned down Essar Steel's plea challenging the Reserve Bank of India's June 13 circular directing banks to start insolvency proceedings against 12 major non-performing assets.
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. The RBI had identified top 12 NPA accounts, of which Essar Steel was one of them.
The Gujarat High Court today refused to grant any relief to Essar Steel for the insolvency proceedings initiated against it at the Ahmedabad Bench of NCLT.
Essar Steel owes lenders around Rs 45,000 crore ($6.99 billion), of which Rs 31,670 crore had become non-performing as of 31 March 2016, the Mint newspaper previously reported citing court hearings.
The central bank's June 13 directive was issued through a press release.More news: Froome regains control as Matthews wins stage 14 of Tour de France
That RBI's decision in picking these 12 accounts was arbitrary inasmuch as no opportunity of being heard was provided to these companies that were being referred to.
The company claimed that unilateral action was being initiated when it was in a restructuring mode and objected that it was being clubbed with the other 11 major defaulting firms. No relief will be given to the debt-laden company with respect to the Insolvency and Bankruptcy Code (IBC), the court said, according to TV news reports. "The company was aware about SBI's action. This court is being misled", he had said during the arguments. Meanwhile, bankruptcy proceedings have also been filed on Essar Steel Ltd and Monnet Ispat and Energy Ltd. The steel company's debt has increased to over Rs 42,000 crores. You can not play games with the court. Instantly acknowledging this error, the RBI told the Gujarat High Court that it would withdraw this line from the press release, and did so by the means of a corrigendum.
The RBI's directive followed amendments to the Banking Regulation Act, which permitted the regulator to intervene directly in the resolution of almost Rs 10 lakh crore in stressed assets on the books of Indian banks.
Thus, a total of 12 accounts constituting of 25% of gross NPAs qualified for insolvency.