The Gujarat High Court on Thursday directed for placing on record before it an RBI directive to a consortium of 22 lenders to initiate insolvency proceedings against Essar Steel following its high Non-Performing Assets (NPAs).
Hearing the July 4 petition filed by the major steelmaker to seek quashing of insolvency proceedings, a single bench of Justice S.G. Shah expressed its surprise that the Reserve Bank of India (RBI) directive to a consortium of lenders led by the State Bank of India and Standard Chartered Bank had not been placed on court record neither by the petitioner nor the respondents.
It is this directive that is under challenge by Essar Steel, which has claimed in the court, among other things, that it was kept in the dark while the central bank asked the lenders to initiate the insolvency proceedings when the company was in a restructuring mode.
The company also alleged that it is being singled out for action among all 12 major accounts identified as NPAs totalling Rs 7,50,000 crore.
Essar Steel had a debt of Rs 45,655 crore, of which Rs 31,671 crore had turned NPAs for banks by March 31, 2016. This increased to Rs 32,864 crore by March 31 this year.
The RBI, meanwhile, has disputed the company's claims.
The central bank's counsel Darius Khambata told the High Court that it was crystal clear from the minutes of the meeting between the company and its lenders that it was "far from reaching any restructuring settlement".
Also, he contended, Essar Steel was quite aware of insolvency proceedings against it at the National Company Law Tribunal.
As for the company's allegation that it was being singled out, the RBI counsel said the insolvency proceedings would actually help the company and added that the objective of the proceedings at the NCLT was to recover "maximum value in a minimum time-bound manner".
"The IBC (The Insolvency and Bankruptcy Code) is not for winding up a company but to resolve and restructurea to avoid winding up," Khambata said.
The RBI counsel said the list of 12 large NPAs against which the RBI had advised banks to initiate insolvency proceedings had been drawn to prevent the loss of public money.
"The NCLT follows a time-bound, structured process, under statutory provisions. Its purpose is to maximise the value of assets and put it back into the system."
The hearing in the case will continue on Friday.
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