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Essar NPAs increased in FY17, it’s not being singled out: RBI to Gujarat HC

LiveMint logoLiveMint 12-07-2017 Maulik Pathak

Ahmedabad: Essar Steel is not being singled out and all big defaulters are being taken through a structured process for speedy resolution of the bad loan problem plaguing the Indian banking system, Reserve Bank of India (RBI) counsel Darius Khambatta argued at the Gujarat high court on Wednesday.

The court was hearing Essar’s petition against the central bank recommending the launch of bankruptcy proceedings against the company.

Although the Insolvency and Bankruptcy Code (IBC) is a time-bound process, it is “not draconian” and “protects interests” of the company as well, Khambatta argued.

“IBC is not for winding up a company but to resolve and restructure to avoid winding up,” said Khambatta.

Essar’s petition asked the high court to set aside RBI’s directive to banks on the grounds that it was already discussing a restructuring proposal with its lenders. The petition said the central bank chose “objective and non-discretionary criteria” for selection, which ignored factors such as operational performance and the resolution process that was underway.

Khambatta said that “records show that in Essar steel case, it was very very far from completing the restructuring”.

He said that Essar owed lenders some Rs45,000 crore in total of which Rs31,671 crore were non-performing assets (NPAs) as on 31 March 2016. He further said that this rose to Rs32,864 crore as on 31 March this year.

The outcome of this case will also decide whether the lenders—State Bank of India (SBI) and Standard Chartered Bank—can proceed with their petitions at the National Company Law Tribunal (NCLT). It will also provide key inputs in other cases where banks have dragged companies to the tribunal, according to lawyers and bankers.

Essar’s counsel Mihir Thakore argued that the Rs5,000 crore criterion used by RBI was not reasonable. The central bank, in its 13 June press release, had said that all firms which had an aggregated exposure of Rs5,000 crore to the banking system, 60% of which had turned bad as on March 2016, should be first taken to bankruptcy court.

Thakore said if Standard Chartered went to NCLT on its own and not based on RBI’s directive, it could not do so as per the law and that the bank was in active discussion with Essar Steel for debt restructuring.

Thakore also argued that the Central government cannot give a general directive to RBI. He said that there was nothing on record to show that the Central government considered “specific cases”.

At the time of publishing, the court had adjourned for lunch and the hearing is likely to continue for the rest of the day.

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