Action against Essar Steel based on internal panel's advice, RBI tells Gujarat HC

The RBI on Friday told the Gujarat High Court that there was no document supporting its directive to initiate insolvency proceedings against 12 major defaulters, including Essar Steel, but the action was taken on advice of the Internal Advisory Committee.

The Reserve Bank of India`s submission came in response to the high court`s Thursday directive for placing on record before it a directive by the central bank to a consortium of 22 lenders led by the State Bank of India to initiate insolvency proceedings against Essar Steel following its high Non-Performing Assets (NPAs).

A single bench judge bench of Justice S.G. Shah is hearing a petition filed by the steel major on July 4 seeking quashing of insolvency proceedings, claiming that the action was unilaterally initiated without giving it a hearing at a time when the company was in a major restructuring mode.

While on Thursday, the RBI had claimed that it had written to the banks concerned to initiate proceedings under the Insolvency and Bankruptcy Code Act 2016 against defaulters, the central bank on Friday submitted that the action was based on advice of its committee.

Its counsel also referred to a press release issued in June about this. "The RBI press release of June 13, 2017 was issued based on the federal bank`s Internal Advisory Committee`s advice. Other than that, there is no other circular or minutes of meeting in support of the press release."

The high court has reserved its order.

The State Bank of India had submitted that it was acting on a written advice by the RBI to filed insolvency proceedings against the company in June before the National Company Law Tribunal, Ahmedabad. The Standard Chartered Bank had also initiated legal proceedings claiming its action was independent of the RBI`s directive.

Essar Steel had a debt of Rs 45,655 crore, of which Rs 31,671 crore had turned NPAs for banks by March 31, 2016 and increased to Rs 32,864 crore by March 31, 2017. 

The company also alleged that it is being singled out for action among all 12 major accounts identified as NPAs totalling Rs 7,50,000 crore.