Ruias Face Another Setback As Essar Power Lenders Move To Invoke Guarantees

The Ruia family, mounting one legal battle after another to thwart Essar Steel Ltd.’s insolvency resolution, faces a fresh setback.

Lenders to the Essar Group’s power companies have filed recovery cases to invoke personal guarantees provided by the promoters, two people aware of the development told BloombergQuint. Private lender ICICI Bank Ltd., and state-run IDBI Bank Ltd. moved various benches of the debt recovery tribunal, the people said without willing to be identified as they are not authorised to speak to the media.

Essar Power Mahan
ICICI Bank Ltd. is fighting a case at the Delhi bench of the DRT, trying to recover personal guarantees offered against loans to Essar Power Mahan Ltd., which has set up a 1,200-megawatt capacity plant at Singrauli district, Madhya Pradesh. The loans, and consequently the guarantees, were to purchase and develop a coal mine which has since then been returned to the government pursuant to a Supreme Court order on allocation of coal mines.

The personal guarantees could run up to Rs 260 crore, the first person quoted above said requesting anonymity. The Delhi bench fined the Ruias since they did not provide their personal financial details on time. It also ordered the promoters of Essar Group to pay their dues and asked Prashant Ruia to inform lenders each time he travelled out of the country, the person said.

In an emailed response, the Essar Group stated that a court order prevented the promoter guarantee from being encashed. And that they had sought directions from the Delhi High Court for return of money paid towards the mine.

“By an order dated 03.11.2017, the Hon’ble Delhi High Court has, inter alia, directed the Union of India that no coercive steps shall be taken, which means that the bank guarantee of ICICI Bank cannot be encashed. The said order is now in force,” an Essar Group spokesperson said.

“In the circumstances, the question of enforcing personal guarantee given by Mr. Prashant Ruia does not arise at all,” the statement read.

BloombergQuint’s perusal of the Delhi High Court orders shows that it was in fact the union government that promised not to take coercive action, till the duration of the case. According to documents available on the high court’s website, on three separate occasions, Nov. 3, 2017, Nov. 7, 2017 and on Dec. 6, 2017, the government told the court that it would not initiate any such action for the time being.

On Nov. 29, 2018, the high court finished hearing all arguments and has since reserved its order. So it’s not clear how long the promoter guarantees will remain un-encashed.

Essar Power Gujarat
Last month, IDBI Bank filed a recovery petition against the Ruias at the Ahmedabad bench of the debt recovery tribunal, seeking to recover personal guarantees worth Rs 50-60 crore in Essar Power Gujarat, the second person spoke on condition of anonymity. Lenders led by State Bank of India are also in the process of filing for recovery proceedings against Essar Energy U.K. to invoke corporate guarantees provided by the company for loans to Essar Power Gujarat, the person said.

While seeking a no-objection certificate from lenders during the Essar Oil sale in 2015-16, Ruias had agreed to provide personal guarantees for Essar Power Gujarat and had promised to repay the dues in the event of a default, the second person quoted earlier said.

In the statement to BloombergQuint, the Essar Group spokesperson said that the Gujarat state government had formed a high powered committee for revival of stressed power projects. The committee has made a recommendation to restructure the debt of these stressed companies, which the state government has accepted, the spokesperson said.

“In view of the above, it is obligatory for the banks to restructure the debts of the stressed three (3) imported coal based power assets, which include Essar Power Gujarat Limited. The lenders, therefore, are unlikely to take any coercive steps against the concerned power producers,” the spokesperson said.

While a high powered committee has suggested restructuring of loans in its report, a banker in the know told BloombergQuint that so far there has been no progress on it.

SBI, IDBI Bank and ICICI Bank have yet to respond to BloombergQuint’s emailed queries.

Essar Steel
The lending consortium to Essar Steel had already filed a case at the Ahmedabad bench of the DRT, invoking guarantees worth Rs 11,500 crore offered by Prashant Ruia and his uncle Ravi Ruia, the first person cited earlier said.

The scale of personal guarantees being invoked are important at a time when the Ruias and Essar Group are trying to wrestle back the ownership of Essar Steel, which is close to be sold to ArcelorMittal, after a long drawn and highly litigated insolvency process.

While there is a moratorium on filing legal proceedings against a company under the Insolvency and Bankruptcy Code, 2016, it does not extend to guarantors of the firms. Lenders are free to move against these guarantors to recover their dues.