Gujarat High Court dismisses Essar Steel petition

Essar Steel will undergo insolvency proceedings as the Gujarat High Court dismissed the company’s plea against the Reserve Bank of India (RBI).

Essar Steel owed lenders around Rs 45,000 crore, of which Rs 31,671 crore had become NPA as on March 31, 2016. The apex bank has issued a release on June 13 directing the banks to start insolvency procedure against a dozen stressed companies including Essar.

Essar has filed a petition in the Gujarat High Court challenging the “arbitrariness” of the central bank.

Justice S.G. Shah today passed an oral order saying no relief will be granted to Essar.

The company was challenging the RBI’s directive, not the SBI’s decision. Standard Chartered Bank had also moved the NCLT against Esaar.

Essar Steel claimed that it’s financial health had improved during the financial year 2016-17 and it no longer required to be a part of the 11 other NPAs as declared by the RBI and that it deserved to be a part of the other 488 cases that have been provided given six months to restructure.

The action was a violation of his client’s fundamental right to equality before the law and equal protection of the law under Article 14 of Constitution, he said.

Following the RBI direction, a joint lenders’ forum led by State Bank of India (SBI) and initiated proceedings in the NCLT under the newly-formed IBC. You can not play games with the court.

RBI counsel Darius Khambata, however, said the steel firm had suppressed facts and misled the court to get a favourable decision. 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.

He argued that though Essar Steel at one point “even agreed to go to NCLT”, the company did not mention it in the petition.

The RBI’s directive followed amendments to the Banking Regulation Act, which permitted the regulator to intervene directly in the resolution of almost Rs 10 lakh crore in stressed assets on the books of Indian banks. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs. 7,50,000 crore, which forms 5 per cent of the country’s GDP.