RBI can’t demand priority for debt cases at NCLT: HC

AHMEDABAD: The Gujarat high court on Friday objected to the Reserve Bank of India (RBI) saying that the National Company Law Tribunal (NCLT) would accord priority to bankruptcy proceedings it has recommended against Essar Steel Ltd and 11 other loan defaulters.

RBI lawyers replied that it was a mistake in drafting a statement that had recommended expediting the proceedings at NCLT, adding that it would issue a corrigendum withdrawing the line.

The high court’s observation and the response by RBI lawyers came on a day the court adjourned until July 13 a case filed by Essar Steel against the central bank recommending the launch of bankruptcy proceedings against the company.

In a June 13 statement, RBI said “such cases will be accorded priority by NCLT”.

The adjournment halts further proceedings on an insolvency petition filed against Essar Steel at the Gujarat bench of NCLT until after July 12, and leaves the fate of RBI’s debt resolution exercise in the balance.

RBI has recommended bankruptcy proceedings against a total of 12 loan defaulters, which account for a quarter of the nonperforming assets clogging up India’s banking system.

The company told the court that it had faced a serious downturn in its steel business in the past on account of a shortage of gas supply for its factory located in Hazira, Gujarat, as well as other economic factors, including the dumping of steel by makers of the alloy from countries like Russia, China, South Korea and Taiwan.

Laywer Mihir Thakor, who appeared for Essar Steel, claimed that the company was on the path of recovery. The plant is working at 80% capacity and the company has annual turnover of about ₹20,000 crore, he said. The company had cleared debt to the tune of ₹3,467 crore in the past one year, added Thakor.

RBI, after receiving sweeping powers to resolve bad loans through an amendment to the Banking Regulation Act, directed banks to refer the 12 identified cases directly to NCLT for resolution under the Insolvency and Bankruptcy Code.

RBI’s criterion was that the total banking exposure of the company should be at least ₹5,000 crore and 60% of this exposure should have turned non-performing by March 2016.

Leave a Reply

Your email address will not be published. Required fields are marked *