MUMBAI (Reuters) - The Gujarat High Court on Monday dismissed Essar Steel India Ltd’s appeal against a central bank order that asked creditor banks to start insolvency proceedings against the steelmaker, lawyers on the case said.
The ruling is a boost to the government, which in May tweaked the banking laws to empower the Reserve Bank of India (RBI) to tackle the country’s bad debt issue, allowing the RBI for the first time to direct lenders to force defaulters into insolvency courts.
Essar Steel had argued that it should have been given an opportunity to present its case before the Reserve Bank of India decided to include the company among 12 defaulters that would be referred to bankruptcy court.
The company had also argued that proceedings could result in its demise when it was “almost in the stage of revival” and working to resolve its debt problems, according to court documents.
After the ruling, Essar Steel said that while it had dismissed its plea, the court had indicated that the company could raise various issues before the National Company Law Tribunal (NCLT), which will hear the bankruptcy case.
These issues included the advanced state of Essar Steel’s talks with lenders on debt restructuring, the repayment of some loans in the past year and improvements in the company’s business performance.
“We respect the decision of the Honourable High Court and will accordingly be raising these issues for consideration by the Honourable NCLT,” the company said in a statement.
The RBI asked lenders in June to start insolvency proceedings against 12 companies as part of new powers it gained this year to help the country cut the more than $150 billion in stressed assets in the banking system.
Essar Steel had 328.64 billion rupees in non-performing loans at end-March this year, up from 316.71 billion rupees ($4.92 billion) a year earlier, Monday’s court order showed. ($1 = 64.3700 rupees)
Reporting by Rupam Jain and Devidutta Tripathy; Editing by Christopher Cushing and Adrian Croft