Backdrop of Essar Fiasco
The Ruias led Essar Group stepped into business with its first project being the construction of an outer breakwater in Chennai port. The jubilant opportunity of constructing the ONGC Bombay High pipeline marked their diversification into shipping and contract drilling business. This phase marked setting up of their ventures in steel. In mid-90’s Essar steered into telecom industry and Hutchinson network merged with Essar Tele to roll out a 2 billion dollar company and later, the telecom major Vodafone acquired a stake in the company.
The Essar Group has often mired itself in economic slush and has earned the infamous distinction in the industrial area with three corporate debt restructurings in India and two bankruptcy protection filings in the United States and Canada making it the first Indian company to default on its international debt repayment obligations. Soon after the steel businesses came out of its first corporate debt restructuring.
Essar Steel acquired Canadian steelmaker Algoma Steel for and an iron ore mine in Minnesota and committed a $1.65 billion investment for building a steel plant there. Essar Steel’s plant in Hazira also drove on lines of expansion. However, with the fall of Lehman Brothers, steel prices crashed. Adding to the woes, the government cut the supply of natural gas soon after the production from Reliance Industries’ Krishna-Godavari (KG) basin started shrinking.
The company’s debt soared and touched an undesirable high. Furthermore, the face-off with the Reliance Industries has always made Essar Group pay a higher price. Gradually, the banks started terming the company’s account as non-performing assets and the group had about one lakh crore as debt.
The Internal Advisory Committee of Reserve Bank of India constituted, agreed to focus on large stressed accounts and recommended that 12 accounts amounting about 25 percent of the current gross NPAs of the banking system would qualify for immediate insolvency proceedings under Insolvency and Bankruptcy Code, 2016. RBI acted on the recommendations and Essar Steel India Limited invoked jurisdiction of the Court under Article 14, 19(1) (g) and 226 of the Constitution of India in the matter of the provisions of the Insolvency and Bankruptcy Code, 2016 by challenging the decision of the Reserve Bank of India before the Gujarat High Court.
Essar’s contention was that this directive was improper in its case, as the company was in an advanced stage of loan restructuring. However, the Gujarat High Court dismissed the plea of Essar Steels as the steel company’s debt has increased to over Rs. 1.17 lakh crore.
The Essar Groups were thwarted with the initiation of insolvency proceedings against the Essar Steel Company after National Company Law Tribunal (NCLT) admitted an application for insolvency proceedings made by State Bank of India and Standard Chartered bank. The Ahmedabad bench of NCLT admitted the insolvency petition against the defaulter company filed the consortium of banks. The NCLT bench rejected Essar Steel’s plea to not start insolvency proceedings against the company under the Insolvency and Bankruptcy Code, 2016 since a debt-restructuring plan was underway with the lenders.
The current development in the case is that the tribunal bench, chaired by Justice Bikki Raveendra Bsssabu, appointed SBI-nominated Satish Kumar Gupta of Alvarez and Marshal India as the interim resolution professional (IRP) for Essar Steel.
– Poornika Kumari
Content Editor @ Legal Bites