In another setback for Essar Steel, the Ahmedabad bench of National Company Law Tribunal (NCLT) on Wednesday admitted the insolvency petition against the defaulter company filed by lenders State Bank of India (SBI) and Standard Chartered Bank (SCB) in a common order.
Through the order, the NCLT bench rejected Essar Steel's plea to not initiate insolvency proceedings against the company under the Insolvency and Bankruptcy Code (IBC) 2016, since a debt-restructuring plan was underway with the lenders.
The tribunal bench, chaired by Justice Bikki Raveendra Babu, appointed SBI-nominated Satish Kumar Gupta of Alvarez and Marsal India as the interim resolution professional (IRP) for Essar Steel. London-based lender SCB's counsel had sought appointment of EY's partner Dinkar Tiruvannadapuram Venkatasubramanian as the IRP.
SCB and SBI had independently filed applications for initiating insolvency proceedings against Essar Steel at NCLT's Ahmedabad bench for outstanding dues of over Rs 34,000 crore.
Earlier, Essar Steel had challenged these proceedings in the Gujarat High Court, which dismissed the company's petition, thereby paving way for initiating the process at NCLT.
The SBI-led consortium forms 93 per cent of the total Rs 45,000-crore debt owed by Essar Steel, of which Rs 32,864 crore has been declared bad as on 31, March 2017. On the other hand, the company had defaulted on its guarantee for SCB's loan to its Mauritius-based subsidiary Essar Steel Offshore worth Rs 3,700 crore.
Essar Steel is part of the 12 corporate debtor companies that the Reserve Bank of India (RBI) has identified as large defaulters based on the criteria of at least Rs 5,000-crore of debt exposure, of which 60 per cent has been termed bad by lenders.
Essar Steel's plea, which was rejected by NCLT under the Wednesday's order, was also based on grounds that the company's operations would be affected due to insolvency proceedings. On Wednesday, the company's counsel was, however, not forthcoming on whether Essar Steel would challenge the order in the National Company Law Appellate Tribunal (NCLAT).
As per its petition, the company had a crude steel capacity of 10 million tonnes per annum, for which it has several long-term contracts with central and state entities for the supply of raw materials and critical production consumables essential for running Essar Steel's manufacturing facilities, the counsel argued. As per the company, at 80 per cent production capacity, Essar Steel expects a turnover of over Rs 25,000 crore for FY17-18.
On 26 July, with the conclusion of arguments by petitioners State Bank of India (SBI) and Standard Chartered Bank (SCB) against Essar Steel, the Ahmedabad bench of National Company Law Tribunal (NCLT) reserved its order on insolvency proceedings against the corporate debtor company.
Earlier, in an 83-page long order, the single judge bench of Justice S G Shah of Gujarat HC had ordered that no relief would be granted to Essar Steel in its petition to quash proceedings initiated against it by SBI-led 22 banks consortium as well as SCB, thereby paving way for the NCLT to admit the filings against the company by its lenders.
On July 4, 2017, Essar Steel had challenged in Gujarat HC SBI and SCB's petition of insolvency proceedings initiated against it at NCLT, following a RBI directive through the apex bank's June 13 dated press release.
During the ongoing hearing at Gujarat HC, RBI counsel had countered Essar Steel's argument that the Rs 5,000 crore of outstanding debt was arbitrary by maintaining that the apex bank had adopted "scientific criteria" to select the 12 non-performing accounts (NPAs) that form 25 per cent of the total Rs 1.28 lakh crore worth of NPAs in the Indian banking system.
Now, with the admission of the insolvency petition by NCLT, it would result in the dissolution of Essar Steel's board of directors on the appointment of the IRP.
Under IBC 2016, the interim resolution professional gets 180 days to come up with a workable solution for the company so that it can repay its loans. This timeline can be extended by another 90 days. If the company failed to come up with a solution within the 270 days, a liquidator would be appointed.
The solution plan will have to be approved by the committee of creditors by a 75 per cent majority which is then filed with the NCLT.
Here's a timeline of Essar Steel's insolvency case developed:
- May 5: Banking Regulation (Amendment) Ordinance authorises RBI to direct banks initiate insolvency process
- May 22: RBI expands OC panel to look after NPA resolution under S4A scheme
- June 13: RBI identifies 12 non-performing accounts (NPA) for insolvency proceedings by banks
- June 27: Insolvency proceedings at NCLT initiated against Essar Steel
- July 4: Essar Steel moves Gujarat HC which asks NCLT to defer insolvency proceedings
- July 4: Gujarat HC asks RBI to clarify what it meant by according priority to NPA cases by NCLT
- July 5: Standard Chartered appeals to Gujarat HC against the deferment of insolvency proceedings by NCLT
- July 7: RBI admits to issue corrigendum on June 13 circular, hearing adjourned
- July 12: Essar Steel falsely claimed about completion of restructuring process, RBI tells court; hearing adjourned
- July 13: Essar Steel had agreed to insolvency proceedings, SBI tells court; hearing adjourned
- July 14: There were no supporting documents to June 13 press release, RBI tells court; hearing ends
- July 17: Gujarat HC disposes of Essar Steel petition, observes that RBI press releases should not 'direct or guide judicial/quasi-judicial authorities'
- July 18: Essar seeks time in NCLT Ahmedabad to file objections, adjourned till July 24
- July 24: Essar challenges SBI application in NCLT on technical grounds
- July 26: NCLT reserves order on Essar Steel for a later date
- August 2: NCLT admits insolvency petition against Essar Steel