Essar Steel will undergo insolvency proceedings as the Gujarat High Court dismissed the company's plea against the Reserve Bank of India (RBI).
According to a senior lawyer, "Now, Essar Steel has the option of going to the Supreme Court. They will take a decision in a day or to as time is a critical factor in this. IT will definitely set a precedent for other 11 companies who are in the dock and this will help banks."
The Gujarat High Court's order clears the way for no further challenges by any of the companies going to insolvency courts on the grounds made by Essar Steel.
This is a big boost for banks and it will further make way for fast-tracking cases to be heard against 11 other defaulting firms filed by banks at the National Company Law Tribunal (NCLT).
According to reports, Justice SG Shah passed an oral order saying no relief will be granted to Essar. A detailed order is expected later on Monday.
On July 14, it had reserved its order for Monday on Essar Steel's plea against the June 13 RBI circular to banks to act on priority under Insolvency and Bankruptcy Code (IBC) against the 12 defaulting companies including the debt laden Essar Steel. These 12 companies owe lenders over Rs 5,000 crore of outstanding loans each.
Following the RBI direction, a joint lendersâ€™ forum led by State Bank of India (SBI) and initiated proceedings in the NCLT under the newly-formed IBC. Standard Chartered Bank had also moved the NCLT against Esaar. However, Essar Steel managed to get a stay from Gujarat Hugh Court.
The High court had earlier stayed the insolvency proceedings against Essar Steel before the National Company Law Tribunal (NCLT) as an interim measure on its plea.
Essar Steel had moved court against the June 13 RBI circular contending that RBI's decision to select the steel producer among the 12 NPA accounts as arbitrary while the firm was in an advanced stage of loan restructuring.
The central bank had contested Essar's challenge saying it was misguiding the court to delay insolvency process.
Essar Steel owed lenders around Rs 45,000 crore, of which Rs 31,671 crore had become NPA as on March 31, 2016.
Resolving bad loans is on the government and RBI's agenda to crack down on big corporate defaulters through the process prescribed under the IBC that specifies time-bound resolution within 6-9 months.