More companies expected to follow Essar Steel's footsteps; what does this mean for loan resolution?
According to the norms, once the case is with the NCLT, the lenders or the banks need to set up a committee of creditors that will come up with a plan on how the asset will be tackled.
Essar Steel has moved Gujarat High Court challenging the Reserve Bank of India's (RBI) insolvency move against the company at the National Company Law Tribunal (NCLT).
Essar Steel is the first company to move the HC and according to Business Standard, many others out of the 11 chosen are likely to follow.
The news report said that Essar has filed a petition in the Gujarat High Court challenging the "arbitrariness" of the central bank.
The high court will hear the matter on July 7, 2017.
On June 13, RBI through its Internal Advisory Committee (IAC) recognised 12 accounts for resolution under Insolvency & Bankruptcy code (IBC).
For accounts with more than Rs 5000 crore – where 60% or more exposure was already classified as NPA by banks as on FY16 – immediate reference to resolution through IBC was made.
Thus, a total of 12 accounts constituting of 25% of gross NPAs qualified for insolvency.
Here's the list of 12 defaulters as per RBI's list who will undergo the insolvency proceedings:
The total money owed by these 12 companies is over Rs 2.2 lakh crore.
With some of these companies moving to courts, recovering and finding resolutions to the NPA and bad loan issues will likely be stretched.
According to the norms, once the case is with the NCLT, the lenders or the banks need to set up a committee of creditors that will come up with a plan on how the asset will be tackled. If the committee is unable to find a solution within 180 days, this can be extended to 270 days. After 270 days, the company will go into liquidation.
If the Gujarat High Court accepts Essar Steel's application and admits the case, it is likely that the resolution at NCLT and IBC will not happen within the given time frame of 270 days.