The Kolkata bench of the National Company Law Tribunal (NCLT) has admitted the State Bank of India's (SBI's) insolvency petition against Electrosteel Steels.
A PwC partner has been appointed as the interim resolution professional (IRP). "The court order is expected to be served by Monday. Once it is served, the board will be suspended," said Electrosteel Steels Chief Financial Officer Ashutosh Agarwal. However, Agarwal said that the IRP will be working with the existing management in running the company.
After the IRP is appointed, within 30 days, he or she will have to make financial calls and the committee of creditors will have to be constituted. In the next 150 days, a resolution plan will have to be worked out. In the meantime, the resolution professional will have to advertise and invite bids for Electrosteel Steels. The best proposal will then selected and a resolution plan will be arrived at.
The resolution plan will have to be approved by at least 75 per cent of the creditors by value before it goes to the NCLT. If there is no agreement in 180 days, then under special conditions, an additional 90 days will be granted.
A resolution plan for Electrosteel Steels was already being discussed with lenders before SBI took the company to the NCLT under the Insolvency and Bankruptcy Code (IBC) under the Reserve Bank of India (RBI) directive. Electrosteel Steels happened to be among the 12 cases identified by the RBI, initially, to be referred under the IBC, 2016.
According to the resolution plan under discussion, Abhishek Dalmia of the Renaissance Group was to bring in fresh equity into the company, besides an infusion of another Rs 1,500 crore as loan from Edelweiss. However, that proposal would now become null and void as the company would have to go through a bidding process.
Electrosteel's debt in FY16 stood at Rs 10,274 crore and lenders had first opted for the strategic debt restructuring (SDR) path to resolve the issue. The SDR was introduced by the RBI to tackle the issue of burgeoning debt by allowing banks to acquire control of a defaulting company by converting loans into equity. Following this, the banks were supposed to bring in new promoters and upgrade their sticky assets to standard ones. Electrosteel was the first case where lenders invoked the SDR mechanism.
In the bidding that followed, First International Group had emerged as the shortlisted bidder but the deal fell through, leading to a series of negotiations with other companies. Eventually, the proposal forwarded by Dalmia and Edelweiss was being discussed when an internal committee, set up by the central bank, sought IBC reference of all its accounts that had fund and non-fund based outstanding amounts greater than Rs 5,000 crore with 60 per cent or more classified as non-performing by banks as of March 31, 2016.