Referring To IBC Will Deteriorate Company Operations, Says Essar Steel
Essar Steel, which was denied relief on a petition challenging Reserve Bank of India's directive to invoke the Insolvency and Bankruptcy Code (IBC) against it, by Gujarat High Court on Monday, said the company is in advanced stage of discussions with lenders on its debt resolution proposal and it fears that referring the company to the IBC at this stage may result in deterioration of its operations and in fact, may delay the resolution discussion with the banks.
The Gujarat high court on Monday dismissed Essar Steel's petition that had challenged the RBI's directive to banks for initiating insolvency proceedings against the company. The High Court also said in oral order that, "No relief will be granted to Essar."
While the High Court order sets the stage for Essar's lenders, including State Bank of India (SBI) and Standard Chartered Bank, to proceed against the company in the National Company Law Tribunal (NCLT) under the IBC, provided Essar does not challenge the court decision in the Supreme Court.
"Our request to the Hon'ble High Court was that in view of the specific facts of Essar Steel, i.e., advanced stage of discussions with lenders on its debt resolution proposal, payment of Rs 3467 crore to banks between April 2016 and June 2017, and the substantial improvement in all operating parameters, the company should have been given time to complete its debt restructuring," Essar Steel said in late afternoon media statement on Monday.
"We are apprehended that referring the company to the IBC at this stage may result in deterioration of the Company's operations and in fact, may delay the resolution discussion with the Banks," it added in the statement.
Essar Steel in its petition to the Gujarat High Court had challenged a directive of RBI to banks to refer a dozen cases, including Essar Steel, directly to NCLT. Essar Steel had also objected to RBI's reference of the company along with 11 other defaulters in the directive, which said the NCLT will accord priority to these cases. Essar Steel's objection to this was in the wake of its ongoing discussion with banks to restructure repayments.
According to information in the public domain, Essar Steel currently owes lenders around Rs 45,000 crore, of which Rs 31,671 crore had become non-performing as of 31 March 2016.
The Central Bank, which has complete power to resolve bad loans post the recent amendment to the Banking Regulation Act, issued the June directive on the criterion that the total banking exposure of the companies should be at least Rs5,000 crore and 60 per cent of this exposure should have turned non-performing as of March 2016.
