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The Ahmedabad Bench of the NCLT has admitted insolvency proceedings against Essar Steels filed by the State Bank of India and Standard Chartered Bank under the Insolvency and Bankruptcy Code, 2016.
Satish Kumar Gupta from Alvarez and Marsal has been appointed as the Interim Resolution Professional (IRP) under Section13 of the Code.
IRP will now take charge over the company and the board of Essar stands suspended for a moratorium period of 180 days. During this period, a committee of creditors will be formed to take various decisions listed in Section 28 of the Code.
Shardul Amarchand Mangaldas represented State Bank of India and the team included Partners Sapan Gupta and Ameya Gokhale. Essar Steel was represented by Nanavati Associates.
Essar fought tooth and nail to avoid the admission of this application. Essar had initially approached the Gujarat High Court challenging the validity of the June 13 Press Release by RBI, which directed banks to initiate insolvency against 12 identified non performing accounts (NPAs), which accounted for nearly 25% of the country’s bad loans.
After having lost the battle at the High Court, Essar tried to prolong the proceedings at NCLT on technical grounds. It was argued on behalf of Essar that SBI’s petition was incomplete as it was not authorized by the bank’s chairman. He quoted a section of the State Bank of India Act 1955 which deals with the power of the chairman.
It was also argued on behalf of Essar that the hearing should be done in two stages—one for admitting or dismissing the application and the second for appointing an interim resolution professional (IRP), if a petition is admitted. They argued that provisions of the insolvency and bankruptcy code give NCLT up to 14 days for appointing an IRP once a petition is admitted.
The NCLT also held that a mere improvement in the financial health of the company during the previous year is no ground for rejecting this application. The Bench further rejected the argument put forth by Essar regarding the initiation of Debt Restructuring Scheme since it may very well be proposed as a plan during the resolution period as well.
Read the Orders