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Essar Steel case: RBI says it has no additional document to support IBC directive

LiveMint logoLiveMint 14-07-2017 Maulik Pathak

Ahmedabad: The Reserve Bank of India (RBI) on Friday admitted before the Gujarat high court that it had no additional documents to produce before the court that supported the decision-making process of the 13 June circular that was in the form of a press statement.

The central bank, by way of a press statement dated 13 June, directed banks to refer a dozen cases, including Essar Steel, directly to National Company Law Tribunal (NCLT) for speedy resolution under the Insolvency and Bankruptcy Code (IBC).

The court is likely to pass an order on Monday for the ongoing matter on Essar Steel versus RBI wherein the company has filed a petition challenging the central bank’s 13 June directive.

Essar, in its petition before the court, said that it had initiated debt restructuring and was on a path of recovery, when the central bank, by way of a press statement dated 13 June, directed banks to refer a dozen cases, including Essar Steel, directly to NCLT.

Essar Steel has challenged RBI’s 13 June decision, saying it was “arbitrary” in nature and has challenged the central bank’s move to include the company among 12 defaulters.

RBI’s senior counsel Darius Khambata said in his submission to the court that the 13 June press statement was based on the recommendation of a high-level internal committee and that they had no other documentary evidence other than the press release itself to support their decision.

During the proceedings on Friday, justice S.G. Shah, before whom the matter is being heard, asked RBI’s counsel to submit the basis on which the 13 June statement was filed. Khambata said there were no such documents that could be produced before the court. He further said that following the press release, RBI had started sending directives to banks to start proceedings against the petitioner.

Justice Shah said that the court precluded RBI to produce such document in future.

Essar Steel owed lenders around Rs45,000 crore in total, of which Rs31,671 crore were non-performing assets (NPAs) as on 31 March 2016. RBI’s criterion for selecting a dozen companies, as mentioned in the 13 June press statement, was that the total banking exposure of the company should be at least Rs5,000 crore and 60% of this exposure should have turned non-performing by March 2016.

Khambata told the court that Essar Steel had tried to suppress facts and made false statements while filing the petition. He said that the petitioner was well aware of the insolvency proceedings that were initiated against it.

Mihir Thakore, senior counsel of Essar Steel, said that they had challenged RBI’s 13 June circular and any communication with the company after that was not relevant to the case.

He said that in a meeting of Joint Lenders Forum (JLF) on 13 and 17 June, the core committee had only deliberated on the finer contours of the debt restructuring proposal and highlighted 22 open issues that need to be resolved before finalization of the proposal and had not considered the option of initiating insolvency resolution process.

State Bank of India (SBI) and Standard Chartered Bank are also respondents in the petition that has been filed by Essar Steel. SBI leads a consortium of 22 banks under JLF that was formed for corporate debt restructuring of Essar Steel.

According to Essar Steel’s submission to the court on Friday, on 22 June, SBI took a decision of approaching NCLT after being directed by RBI to do so.

Thakore claimed that even Standard Chartered Bank’s decision to approach NCLT on 27 June was based on RBI’s directive. He claimed that both the banks were in negotiations with Essar Steel but they did not take final shape due to RBI’s 13 June directive.

Standard Chartered Bank’s counsel Kamal Trivedi said that the London-based bank was unnecessarily dragged into the case as they were not a part of JLF nor was their decision based on the RBI directive. He said that the company had lent $450 million to a Mauritius-based subsidiary of Essar Steel and the promoters of Essar Steel were a guarantor.

Trivedi said that the company had failed to repay the amount, hence they had approached NCLT.

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