HC puts StanChart's plea on Essar Steel's insolvency proceedings on hold

A division Bench of the Gujarat High Court on Wednesday adjourned Standard Chartered Bank’s appeal for quashing a single-judge Bench’s stay on insolvency proceedings filed against Essar Steel.

The London-based lender said in its appeal, a copy of which is in possession of Business Standard, that Essar Steel had “failed to disclose” to the single- judge Bench that the bank was “neither a party to any alleged restructuring package, nor any consent has been obtained to such package”. The appeal maintained that Standard Chartered was not a member of any committee of lenders, which was being claimed to be considering Essar Steel's restructuring package.

Earlier, the single-judge bench of Justice S G Shah stayed the insolvency proceedings against Essar Steel by its lender, Standard Chartered Bank, at the National Company Law Tribunal (NCLT)'s Ahmedabad bench till the next hearing on July 7. It also directed the Reserve Bank of India (RBI) to explain what it meant by the NCLT according priority to the 12 cases of insolvency. In an oral order, the division bench adjourned the matter till July 11 even as it maintained that it did not wish to disturb the ongoing proceedings of the single-judge bench in the case, said sources. In its stay order, the single-judge bench observed that Essar Steel had repaid Rs 3,467 crore in the past one year and that the company was doing well and serious efforts were being made for its revival. However, Standard Chartered Bank claimed in its appeal that Essar Steel had paid nothing to it as part of its overall Rs 3,490 crore repayment. 

Standard Chartered also said Essar Steel had “made false statement on oath” that the bank's decision to initiate corporate insolvency resolution process in the NCLT was pursuant to RBI directives. "The fact is that no directives have been issued by the Respondent 3 (RBI) to the appellant (Standard Chartered Bank)," the bank’s appeal noted, while adding that it had filed the application under section 7 of the Insolvency and Bankruptcy Code (IBC) 2016 before the NCLT in its "individual capacity as a financial creditor in light of the statutory right" conferred under the IBC to the bank. The RBI had on June 13 asked banks to initiate insolvency proceedings at the NCLT against specific cases of non-performing assets, which included steel players like Essar Steel and Bhushan Steel, among others. Among these, even as insolvency proceedings against Jyoti Structures Ltd were admitted by NCLT's Mumbai bench, Essar Steel filed a special civil application in the Gujarat High Court to seek stay on such proceedings. 

On behalf of Essar Steel, senior counsel Mihir Thakore and Mihir Joshi argued that the company had been trying to restructure debt. However, before any concrete decision could be arrived at between the parties, the RBI press release came as a sudden development. A senior executive in one of the firms said if the court struck down the RBI circular, the order would be applicable to all the companies facing insolvency proceedings.

While hearing the Essar Steel petition, Justice Shah observed that while RBI had listed companies whose accounts were disclosed as NPAs with the effective date of March 31, 2016, the press release was issued on June 13, 2017.

Essar Steel feared if action was taken in accordance with the release, the administration of the company would go into the hands of an interim resolution professional.

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