The Reserve Bank of India has amended its earlier press release issued to refer 12 companies for insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

This follows objections raised by the Gujarat High Court which questioned a line in the RBI’s press release which said that cases (large stressed accounts) identified by its internal advisory committee for reference by banks under the IBC will be accorded priority by the National Company Law Tribunal (NCLT)

The Court’s observation came in the case Essar Steel filed against the RBI, after the central bank had recommended that banks start bankruptcy proceedings against the company. Besides the RBI, State Bank of India, Standard Chartered Bank and NCLT, Ahmedabad, are the other respondents in the case.

Referring to the fact that the internal advisory committee recommended that 12 accounts totalling about 25 per cent of the current gross bad loans of the banking system would qualify for immediate reference under IBC, the RBI press release had said: “Such cases will be accorded priority by the National Company Law Tribunal (NCLT).”

This line, in the circular, did not go down well with the High Court and it wanted the same to be deleted. RBI’s lawyers admitted there was a mistake in drafting the circular. Legal experts say the line in the circular seemed to suggest that the RBI was directing NCLT.

While the line has been deleted, the RBI, in its corrigendum, said the remaining contents of the Press Release remain unchanged.

In its petition in the Gujarat High Court, Essar Steel said that after extensive negotiations lasting for almost 15 months, it reached a settlement with the creditors led by the SBI on the debts owed to them and to other banks, and was awaiting the final approval of the banks for the settlement to take effect.

“But shockingly and without any notice to the petitioners (Essar Steel and K Sankar Nair, who is a shareholder of the company), the respondent number 1 (RBI), vide press release and directive dated June 13, 2017 has directed that proceedings be initiated under the IBC against petitioner number 1, so as to treat it as of the same class as the other 11 companies so as to render the entire settlement process worthless,” the petition said.

The petition underscored that the dues of Essar Steel as on March-end 2016 was made the basis for the impugned reference, which is totally irrational and arbitrary in its case as it is making cash and higher operating profits since April 2016 and has paid ₹3,467 crore to the banks since April 2016.

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