The Gujarat High Court decision to reject the Essar Steel plea is a big win for RBI and banks since, in the period the case was being heard, many had begun to fear the NCLT process - planned as a way to fast-track resolution of cases like Essar Steel - would do the way of previous such attempts like DRTs and Sarfesai.
Essar Steel owed lenders around Rs45,000 crore, of which Rs31,671 crore had become non-performing as of 31 March 2016.
Essar Steel had moved the high court challenging the RBIs June 13 circular asking the banks to initiate action against the company and eleven other accounts (companies) with over Rs 5,000 crore of outstanding loans each under the Insolvency and Bankruptcy Code (IBC).
"As we apprehended that referring the company to the the Insolvency and Bankruptcy Code (IBC) at this stage may result in deterioration of the companys operations and in fact, may delay the resolution discussion with the Banks", it added. Essar's petition stirred a controversy over the RBI's press release which mentioned that such cases would be accorded priority for resolution.
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In its defence, the RBI had clarified that Essar Steel was not the only company singled out for insolvency proceedings. Instantly acknowledging this error, the RBI told the Gujarat High Court that it would withdraw this line from the press release, and did so by the means of a corrigendum. They were also aware that lenders will file for insolvency proceedings.
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RBI said in its submission to the court that the 13 June press statement was based on the recommendation of a high-level internal committee and that the central bank had no documentary evidence to produce other than the press release itself to support the decision. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs 7,50,000 crore, which forms 5 per cent of the country's GDP.
RBI, which is the main respondent in the case, engaged renowned lawyer from Mumbai Darius Khambata, former additional solicitor general of India and Maharashtra advocate general. Standard Chartered Bank had also moved the NCLT against Esaar.