Essar Steel had moved the high court against Reserve Bank of India (RBI) for initiating insolvency procedure against it.
The government in May had brought an ordinance to amend the Banking Regulation Act giving the Reserve Bank of India (RBI) powers to resolve Indian banking industry's bad debt crisis.
The court also questioned the "functioning" of the RBI for its decision to issue the press release in which it had directed banks to initiate insolvency proceedings against defaulting companies.
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.
Earlier during the hearings, the RBI had admitted an error in its June 13 press release, which mentioned that."such cases will be accorded priority by the National Company Law Tribunal".
Essar had pointed to facts, including " advanced stage of discussions with lenders on its debt resolution proposal, payment of Rs3,467 crore to banks between April 2016 and June 2017, and the substantial improvement in all operating parameters, the company should have been given time to complete its debt restructuring as we apprehended that referring the company to the IBC at this stage may result in deterioration of the company's operations and in fact, may delay the resolution discussion with the banks, " in its petition, according to the company. "This court is being misled", he had said during the arguments.
Essar Steel has complained that it was unfairly singling out for bankruptcy proceedings under the National Company Law Tribunal and that it was not informed of the NCLT proceedings. Shah in his 83-page order said that a banking company is entitled to initiate insolvency proceedings without the directions of the RBI.
Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) and initiated proceedings in the NCLT under the newly-formed IBC. Essar Steel was one of these 12 companies.
"The company had argued before the HC that it should not be treated on par with other eleven accounts (firms) which have been closed now, while Essar Steel is still doing well with an annual turnover of Rs 20,000 crore", a report on The Economic Times said. While arguing before the court, the RBI counsel had informed the court that these 12 NPA accounts represent 25 per cent of the total NPA of Rs. 7,50,000 crore, which forms 5 per cent of the country's GDP.
The petitioner also included Standard Chartered Bank, which was a lender for Essar's foreign offshore arm, among the respondents, claiming that it was also acting on diktats of the central bank. Instantly acknowledging this error, the RBI told the Gujarat High Court that it would withdraw this line from the press release, and did so by the means of a corrigendum.