Gujarat HC Denies Relief To Essar Steel Against RBI's Order to Initiate Insolvency Proceedings [Read Judgment]

The Gujarat High Court on Monday dismissed Essar Steel's Petition against the Reserve Bank of India's directive to Banks for initiating insolvency proceedings against the Company. An oral order was passed by Justice S.G. Shah, with a detailed order expected later today.

Essar Steel had approached the High Court challenging a circular issued by the RBI on 13 June, directing banks to initiate insolvency proceedings against 12 major NPAs. Each of these 12 accounts had an outstanding debt of Rs. 5,000 crore.

Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) had initiated proceedings in the National Company Law Tribunal (NCLT) under the newly-formed Insolvency and Bankruptcy Code.

Essar Steel had challenged the RBI's decision claiming that the manner of selection of the 12 companies was arbitrary. It had pointed that that it was in discussions with Standard Chartered Bank till June 21 over a possible restructuring plan which was also approved by the company's board. The plan had, however, reached a standstill, in view of RBI's decision last month.

Essar Steel had, further, brought it to the notice of the Court that its operational condition is improving, and that it has repaid bankers to the tune of Rs 3,467 crore between March 2016 and March 2017.

It had, therefore, submitted that Essar Steel should have been included in the alternative list of companies that have been granted 6 months to arrive at a resolution plan. It had also claimed that it should have been given an opportunity to be heard before RBI decided to name it in the list.

Besides, Essar Steel had, in the Petition, desired that the Banks be directed to implement the revival package approved by its board on May 19, 2017, or that the NCLT be directed to consider the revival package before proceeding any further.

The RBI, on the other hand, had submitted, through its Counsel Darius Khambatta, that the Rs. 5,000 crore criterion used to select companies being referred to the NCLT was logical. It pointed out that the 12 accounts together make up 25% of the banking system's non-performing assets. It could not, however, produce any supporting documents to justify its decision of including Essar Steel in the list.

With today's order, the interim stay earlier granted stands vacated, and the insolvency proceedings can now be resumed by the lenders