Monday, July 17, 2017

Gujarat HC turns down Essar Steel's bad loan plea in big win for banks

The Gujarat High Court dismissed Essar Steel’s plea against the Reserve Bank of India directive asking lenders to initiate bankruptcy proceedings against the debt-laden company, observing that the regulator and banks are empowered to do so, giving a boost to the government’s efforts to clean up the country’s bad-loan mess.  

But the court cautioned RBI against encroaching upon the judiciary’s territory as a press release it issued previously appeared to be in form of a directive to National Company Law Tribunal (NCLT). RBI has since removed the reference in the reissued press release.  

The court dismissed arguments that restructuring under the Insolvency and Bankruptcy Code (IBC) would lead to disruptions in the company’s operations that could threaten the employment of thousands of workers.  

The law "certainly makes it clear that, now, RBI has such powers to issue certain directions to certain banks and banking companies so as to see that there is proper recovery of public money or for any other such purpose," Justice SG Shah said in his order.  
"When it is undisputed fact that the petitioner company has not paid its debt to the tune of more than Rs 32,000 crore at the end of 31.3.2017 and when total debt is more than Rs 45,000 crore, it is clear and obvious that RBI is authorised to direct any banking company to initiate insolvency resolution process." 

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