The Gujarat High Court's order clears the way for no further challenges by any of the companies going to insolvency courts on the grounds made by Essar Steel.
Justice SG Shah said Essar will be granted no relief, Mint reported. It had said it was in talks with banks about restructuring repayments.
The company was challenging the RBI's directive, not the SBI's decision. RBI counsel argued that though Essar Steel at one point "even agreed to go to NCLT", the company did not mention it in the petition, as had it been mentioned, the case would have been disposed of immediately. Essar Steel had moved the High Court challenging the RBI's June 13 circular asking the banks to initiate action against the company and 11 other accounts with over Rs 5,000 crore of outstanding loans each under the Insolvency and Bankruptcy Code (IBC). Bad loans stood at Rs 1 lakh crore in 2015-16 and from their have peaked to Rs 6 lakh crore. However, Essar continued to raise objection on being clubbed with other 11 NPA accounts, whereas it was in discussion with banks for a financial restructuring. They were also aware that lenders will file for insolvency proceedings.
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Banks are standing on the huge pile of corporate non-performing assets, which according to the RBI stood at Rs. 7,50,000 crore as on March 31, 2017.
Recovery of bad loans, a millstone around the neck of Indian banks, had gathered momentum after years of dithering when the Prime Minister Narendra Modi-led NDA government empowered the Reserve Bank of India (RBI) last month to direct banks to take big defaulters through the process prescribed under the Insolvency and Bankruptcy Code that specifies time-bound resolution.
RBI, which is the main respondent in the case, engaged renowned lawyer from Mumbai Darius Khambata, former additional solicitor general of India and Maharashtra advocate general. Standard Chartered Bank had also moved the NCLT against Esaar.