It wasn't very thoughtful of the RBI to have directed NCLT to accord priority to certain cases. Essar even invoked Article 14 (equality before the law) and alleged the central bank had chosen it for IBC proceedings exclusively on the basis of its outstanding loan being greater than Rs. 5000 Crores with 60% or more classified as NPAs by banks as of March 31, 2016.
More companies expected to follow Essar Steel's footsteps; what does this mean for loan resolution? "IT will definitely set a precedent for other 11 companies who are in the dock and this will help banks". "It also goes without saying, as already recorded herein above, that for filing any such proceeding, none of the financial company or Bank requires either the permission or direction from RBI for other agency or authority because it is their independent and absolute right to initiate any such proceeding/s", it added. "The company was aware about SBI's action". The RBI later issued a corrigendum to the press release and deleted the statement.
However, the Court observed that it can not be held that RBI's directions are in the nature of classification or such classification is irrational, unjust, arbitrary or discriminatory.
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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.
Essar Steel also said that whereas other companies had shut shop, Essar Steel was still functional with an annual turnover of Rs 20,000 crore. They were also aware that lenders will file for insolvency proceedings.
According to a senior lawyer, "Now, Essar Steel has the option of going to the Supreme Court". 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. Gujarat's Advocate General Kamal Trivedi appeared for Standard Chartered Bank; He was briefed by Singhi & Co.