Gujarat High Court refuses to grant any relief to Essar Steels

Court. The court order sets the stage for Essar Steel’s creditors to proceed against the company in the National Company Law Tribunal under the Insolvency and Bankruptcy Code

Court. The court order sets the stage for Essar Steel’s creditors to proceed against the company in the National Company Law Tribunal under the Insolvency and Bankruptcy Code

The Gujarat High Court has dismissed Essar Steel's petition against the Reserve Bank of India after giving the debt-laden company an interim relief earlier this month staying further proceedings in the bankruptcy process initiated on the firm. Essar's petition stirred a controversy over the RBI's press release which mentioned that such cases would be accorded priority for resolution. Standard Chartered Bank had also moved the NCLT against Esaar. Shares of most of the nine listed companies out of the 12 on the RBI's list are on a downtrend since then.

RBI said in its submission to the court that the 13 June press statement was based on the recommendation of a high-level internal committee and that the central bank had no documentary evidence to produce other than the press release itself to support the decision. The State Bank was asked by the RBI to file a case before the NCLT against Essar Steel through the circular, advocate Thakore said.

Essar Steel had moved the court against Reserve Bank of India (RBI) for initiating insolvency procedure against it. It may be noted that Gujarat HC had stayed an insolvency proceedings against Essar Steel as the company had argued before the court that it was in advanced stage of restructuring its debt. The action, he argued, was a violation of his client's fundamental right to equality before the law and equal protection of the law under Article 14 of Constitution. "The company was aware about SBI's action".

RBI counsel Darius Khambata, however, said the steel firm had suppressed facts and misled the court to get a favourable decision. They were also aware that lenders will file for insolvency proceedings. 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. Bad loans stood at Rs 1 lakh crore in 2015-16 and from their have peaked to Rs 6 lakh crore.

RBI's criteria for selecting the dozen defaulters was that each of them owed at least ₹5,000 crore to banks and 60% of it had turned non-performing by 31 March 2016.

Thus, a total of 12 accounts constituting of 25% of gross NPAs qualified for insolvency.