New Delhi: The Gujarat High Court has dismissed a petition filed by Essar Steel that challenged a directive by the Reserve Bank of India to lenders to initiate insolvency proceedings against the company to recover bad loans.
The RBI had directed Essar's creditors, including State Bank of India, Standard Chartered Bank and others, to initiate insolvency proceedings against the steel maker in the National Company Law Tribunal (NCLT) to recover some of the loans that had become non-performing.
With this, the stage is set for the lenders to start recovery under a new law pushed through by the government and the central bank to resolve the massive NPA backlog in the Indian banking system.
The RBI, on 13 June, had issued a circular that directed banks to refer the 12 largest NPA's to the NCLT. The authorities had amended the Banking Regulation Act to empower the central bank to find a solution to the bad loan problem.
Essar Steel contested a line in the circular, later deleted by the RBI, which said that the NCLT would prioritize resolving these dozen cases. The amendments allowed NPA's of greater the Rs 5,000 crore to be targeted first.
The court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea.
Essar Steel, with total NPAs to the tune of over Rs 40,000 crore, objected to being clubbed with the other companies. Essars argument in Court was that it was in talks with its lenders to restructure loans and therefore couldn't be clubbed with other companies that had large outstanding NPAs. It also argued that the company was still doing well and had a revenue of Rs 20,000 crore last year.
However, the counsel for the State Bank of India told the court last week that the company had "suppressed facts" in the case. Unless Essar challenges the verdict in the Supreme Court, the stage is set for banks to initiate bankruptcy proceedings to recover some of their money.
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