Essar Steel moves HC against against insolvency proceedings

Essar Steel has moved the Gujarat High Court against insolvency proceedings initiated by the banks on the direction of the Reserve Bank (RBI).

The high court issued notice to the RBI and leader of the banking consortium SBI and posted the matter for Friday, sources said.

When contacted, a company spokesperson said: "Essar Steel has moved the Gujarat High Court, which has posted the matter for hearing on July 7, 2017."

Clamping down on bad loans, the RBI had last month identified 12 accounts for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of total NPAs of banks.
 

As per sources, some of the borrowers have raised issues that the RBI's direction makes an arbitrary distinction between the 12 identified cases and the rest.

While the RBI's directive was to refer the 12 cases directly to the National Company Law Tribunal (NCLT), other stressed cases were given a six-month period to arrive at a resolution with their lenders.

Sources said that some borrowers have pointed out that the cut-off date of March 31, 2016 itself is arbitrary as it does not take into account subsequent developments in the companies' performance.

The banking sector is saddled with non-performing assets (NPAs) of over Rs 8 lakh crore, of which Rs 6 lakh crore is with public sector banks (PSBs).

The 12 identified accounts would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC), the RBI had said.

The Reserve Bank, based on the recommendations of the IAC, will accordingly be issuing directions to banks to file for insolvency proceedings under the IBC in respect of the identified accounts.

"Such cases will be accorded priority by the National Company Law Tribunal (NCLT)," it said.

As regards other non-performing accounts, the IAC had recommended that banks "should finalise" a resolution plan within six months.

In cases where a viable resolution plan is not agreed upon within six months, banks would be required to file for insolvency proceedings under the IBC.