In what is being termed as a win for government’s efforts to reduce corporate bad loans, the Gujarat High Court today rejected a plea filed by Essar Steel challenging RBI’s order related to treatment of bad loans. It may be recalled that RBI had asked banks to treat bad loans as per the provisions available under the Insolvency and Bankruptcy Code. RBI had named a total of 12 firms including Essar Steel and had asked banks to initiate proceedings against these companies under the Insolvency and Bankruptcy Code. Essar Steel had challenged the order given by RBI, but the Gujarat High Court has rejected its plea today.
Essar Steel had argued that the RBI circular released on June 13 was improper and the company was already in advanced stages of restructuring its loan portfolio. 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. Large bad loans have been a big problem for banks, as it affects their profitability. RBI took a tough stand after the NDA government gave it the go ahead to take appropriate action to reduce bad loans.