Lender's rebuttal: Application against Essar Steel authorised under SBI Act

Ongoing hearing of insolvency proceedings against Essar Steel at NCLT bench was put off for July 26

In a rebuttal to Essar Steel's claims that State Bank of India's (SBI) application in the National Company Law Tribunal (NCLT) was invalid, the lead lender told the Ahmedabad bench that under section 76 and 77 of SBI Act 1955, the signatory was authorised to initiate insolvency proceedings.

Essar Steel on Monday had sought dismissal of SBI's application for insolvency proceedings at NCLT on the grounds that the signatory of the application filed at NCLT did not have any authorisation of such powers by SBI Chairman or Central Board, in this case Chairperson Arundhati Bhattacharya under section 27 of SBI Act 1955. Under section 27, the Act maintains that the Chairman exercises all powers and acts exercised or done by SBI subject to general or special directions given by the Central Board.

However, SBI counsel countered the same by maintaining that the signatory, Kshitij Kumar, was entitled to file applications to NCLT as per authorisations mentioned in section 76 and 77 of SBI Act.

The ongoing hearing of insolvency proceedings against Essar Steel initiated by SBI and Standard Chartered Bank (SCB) at the NCLT bench was put off for Wednesday, July 26, 2017.

Further, Essar Steel's counsel on Tuesday had argued that the insolvency proceedings initiated at NCLT would impact its ongoing operations. "When the company is in such a situation (of undergoing insolvency), suppliers and purchasers cannot be asked to cooperate and would impact the operations," the Essar Steel's counsel told the tribunal bench chaired by Justice Bikki Raveendra Babu. 

Countering the same, the lead lender's counsel argued that the corporate debtor's grievances were against the Insolvency and Bankruptcy Code (IBC) 2016. "The company's concerns about its operations being affected are grievances against the Act which has not even been challenged by Essar Steel," argued the counsel for SBI, which leads a consortium of 22 creditors at the Joint Lenders Forum (JLF) that was formed for debt restructuring of the company. The SBI-led consortium forms 93 per cent of the total Rs 45000 crore debt owed by Essar Steel, of which Rs 31,671 crore has been declared bad as on 31 March 2016.

The company's operations would be affected due to insolvency proceedings at a time when the company had a crude steel capacity of 10 million tonnes per annum for which it has several long term contract with central and state entities for supply of raw materials and critical production consumables which are essential for running of the manufacturing facilities of Essar Steel, the counsel argued. As per the company, at 80 per cent production capacity, Essar Steel expects a turnover of over Rs 25,000 crore for FY 2017-18.

In its petition too, Essar Steel claimed to be on a "path of recovery" even as it was closely negotiating with lenders when SBI and SCB initiated insolvency proceedings at NCLT in later part of June.

Meanwhile, countering Essar Steel's arguments of separate hearings for admission of insolvency proceedings and appointment of interim resolution professional (IRP), the SBI counsel told the NCLT bench that under IBC, the tribunal is not bound to segregate such hearing dates.

SCB and SBI had independently filed applications for initiating insolvency proceedings against Essar Steel at NCLT's Ahmedabad bench for outstanding dues of over Rs 34000 crore emerging out of its steel plants in Gujarat. Earlier, Essar Steel had challenged these proceedings in the Gujarat High Court which dismissed the company's petition, thereby paving the way for initiating process at NCLT.

If admitted by the Ahmedabad bench of NCLT on July 24, it would result in immediate dissolution of Essar Steel's Board of Directors on appointment of an interim resolution professional (IRP). 

While SBI, in its application before the NCLT, has suggested Satish Kumar Gupta of Alvarez and Marsal India as the IRP to be appointed in case of Essar Steel, SCB has suggested Dinkar Tiruvannadapuram Venkatasubramanian, partner at EY, who was recently appointed as IRP for Amtek Auto. 

The professional gets 180 days to come up with a workable solution for the company so that it can repay its loans. This timeline can be extended by another 90 days. If the company failed to come up with a solution within the 270 days, a liquidator would be appointed. 

The solution plan will have to be approved by the committee of creditors by a 75 per cent majority which is then filed with the NCLT.