A court earlier this month allowed ArcelorMittal’s $6 billion purchase of Essar Steel, and also modified the distribution of the proceeds, saying the money has to be shared proportionately. A petition filed by the banks in the country’s top court seeks to quash the bankruptcy tribunal’s ruling, court filings seen by Bloomberg show.
The ruling that placed secured creditors like banks at par with unsecured ones such as vendors to the insolvent company, would lead to a “severe plunge” in the rate of recoveries and expose the banks to “grave financial distress,” they said in the petition filed Friday.
“This will result in serious damage to the Indian Economy as a whole and dilapidate the entire banking system,” lenders said in the petition.
Further distress in banking may force the government to make contributions to maintain required capital adequacy, they said. To be sure, lenders are not opposed to the sale of Essar Steel to the company controlled by tycoon Lakshmi Mittal but are against redistribution of funds ordered by the tribunal and taking away of lenders’ powers in making a commercial decision about bids during the insolvency resolution process. A spokesman for SBI didn’t immediately respond to a phone call and email seeking comments.
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