No singling out of Essar Steel for insolvency proceedings, RBI tells high court

The Reserve Bank of India (RBI) on Wednesday told the Gujarat High Court that Essar Steel  was not being singled out of for initiating bankruptcy proceedings and that the company was only one among 12 companies that have piled up debt beyond their capacity to repay or even service.

In fact, RBI counsel Darius Khambatta pointed out that Essar Steel, which has defaulted on more that Rs40,000 crore of loans, has been grouped among  12 defaulters with a loan of at least Rs5,000 crore and where more than 60 per cent of the loans have been classified as bad loans by banks

Essar Steel has complained that it was being unfairly singled out for bankruptcy proceedings under the National Company Law Tribunal and that it was not informed of the NCLT proceedings. The central bank instead accused the company of suppressing facts of the case.

The RBI counsel said Essar Steel's representative was present at a meeting t the joint lenders' forum.

He said the list of 12 defaulters who should be tried under the bankruptcy law was prepared by an internal advisory committee adopting scientific criteria, where those companies with a loan of at least Rs5,000 crore that have defaulted and where more than 60 per cent of the loans have been classified as bad loans by banks.

Essar Steel, which has defaulted on more than Rs 45,000 crore of loans, is contesting the RBI order that it be tried under the bankruptcy courts. He said Essar owed lenders some Rs45,000 crore in total of which Rs31,671 crore were non-performing assets (NPAs) as of 31 March 2016. He further said that this rose to Rs32,864 crore as of 31 March this year.

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, the RBI counsel argued before the court.

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 Steel had told the court that its loan recast was almost finalised, but the delay by banks and RBI's arbitrary selection of March 2016 as a cut-off date clubbed it with some other companies that are dysfunctional.

The court today continued hearing RBI's arguments.