Gujarat HC Dismisses Essar Steel's Petition Against RBI

Gujarat HC Dismisses Essar Steel's Petition Against RBI

Gujarat High Court has dismissed the petition filed against Reserve Bank of India by Essar Steel.

Justice S.G. Shah issued an oral order stating that no relief could be granted to the steel major. At the hearing on Monday, Essar Steel's counsel Mihir Thakore argued that the SBI and other lender banks under the Joint Lenders Forum may not have approached the NCLT for insolvency proceedings, had the RBI not issued the circular.

On June 13, RBI through its Internal Advisory Committee (IAC) recognised 12 accounts for resolution under Insolvency & Bankruptcy code (IBC).

One of these 12 accounts was that of Essar Steel. Shares of most of the nine listed companies out of the 12 on the RBI's list are on a downtrend since then. Essar contested a line in the RBI release which said NCLT will accord priority to these cases. 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.

Banks are standing on the huge pile of corporate non-performing assets, which according to the RBI stood at Rs. 7,50,000 crore as on March 31, 2017.

Essar Steel, in its petition, had appealed that the RBI notification arrived even while the firm was trying to implement a board-approved restructuring package. At the time, lenders were already discussing a restructuring plan approved by the company's board, it said.

This is a big boost for banks and it will further make way for fast-tracking cases to be heard against 11 other defaulting firms filed by banks at the National Company Law Tribunal (NCLT).

During the course of the proceedings, the Gujarat HC also asked the RBI to present documents to substantiate the the basis of declaring those particular 12 accounts for being referred to the NCLT.

RBI, which is the main respondent in the case, engaged renowned lawyer from Mumbai Darius Khambata, former additional solicitor general of India and Maharashtra advocate general.

With the latest order, the interim stay granted on the proceedings against Essar Steel under the NCLT stands vacated and insolvency proceedings under the NCLT can, hence, be resumed by the lenders led by State Bank of India (SBI).