On July 14, the court had reserved its order for Monday on Essar Steel's plea against July 13 RBI circular to banks to act under Insolvency and Bankruptcy Code against the steel major and 11 other firms with over Rs 5000 crore outstanding loans.
Post this RBI identified the 12 accounts, constituting for 25 percent of total non-performing assets (NPAs) of banks. A detailed court order is expected later on Monday. 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.
Essar Steel owes lenders around Rs450 billion ($6.99 billion), of which Rs316.7 billion had become non-performing as of March 31, 2016.
Essar Steel was one of these 12 companies. It was then argued "the initiation of proceedings under the Bankruptcy Code results in coercive steps including mandatory suspension of the functioning of the Board of Directors and hands over of management to Insolvency Resolution Professional (IRP)". Also, as RBI pointed out, the IBC process was not about winding up Essar Steel but was aimed at fast-tracking the restructuring process - RBI didn't say, but having the insolvency sword would force promoters to be more reasonable.
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Essar Steels counsel Mihir Thakore had argued that the SBI and other lender banks under the Joint Lenders Forum may not have made a decision to approach the National Company Law Tribunal (NCLT) for insolvency proceedings had the RBI not issued such a circular. "This also goes to show the manner in which RBI is functioning, in as much as there is a press release even without a decision at certain level that press release is to be published and what should be included in such press release". The apex bank has issued a release on June 13 directing the banks to start insolvency procedure against a dozen stressed companies including Essar.
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.
State Bank of India, which leads a consortium of banks under the Joint Lenders' Forum for corporate debt restructuring of Essar Steel and is a respondent in the case, has hired Shardul Amarchand Mangaldas and Co.
"Standard Chartered Bank, also a party to the case, stands on a different footing".