Gujarat HC order on Essar Steel bankruptcy: Could it be a setback to NPA resolution?

The Gujarat High Court was approached by Essar Steel to stay the bankruptcy proceedings initiated against it by the National Company Law Tribunal (NCLT) at the behest of the Reserve Bank of India (RBI).

The RBI had used its new-fangled powers to name top defaulters to the banking and financial system with a view to finding solution for the vexed problem of non-performing assets (NPA), euphemism for bad debts. The RBI identified 12 of them with the common thread running among them being outstanding of more than Rs 5000 crore. Essar Steel had the dubious honor of finding a place in the bankers’ roll-call of blaggards.

Having been caught with its pants down, Essar had the gall to approach the Gujarat High Court with a pretended sense of hurt----Why me? It has become customary in this country to ask ‘why me’ when caught with pants down or hands in the till, if you like. Vijay Mallya of Kingfisher infamy had the cheek to ask the same question even as he fled the country to shake of creditors snapping at his heels and to take shelter in his luxurious ranch in London. More recently, NDTV asked the same question---Why we, when there are greater crooks in the country. Touché!

PTI

It is not for the defaulter to ask why me or me alone. It is not for him to say that you first catch the crooks in their pecking order before catching me. A person feeling the heat of the law cannot throw it off the track by saying he is, if anything, a lesser crook. Instead, what he must say is he is innocent which he would prove man-like in the court proceedings.

It is neither possible for the government nor for the investigative agencies nor for the informants to first compile a comprehensive list of all crooks in the country and arraign them before the courts of law in the pecking order in the descending order of loot or default. True, investigative agencies and governments can play favorites by being selective---by turning the full force of law on those it perceives to belong to the rival political camp while being soft on those defaulters who have been in the ruling dispensation’s favored list.

The solution to such brazen acts of selectivity is two-fold----robust defence in the court proceedings and tipping off the investigative agencies about the misdeeds of greater crooks. If the investigative agencies turn a blind eye to such tip-offs, then courts’ doors can be knocked at.

The Gujarat High Court with due respect didn’t do the cause of NPA resolution any good by speaking with a forked tongue----your prayer for stay of the bankruptcy proceedings cannot be entertained but NCLT will first examine whether yours was a fit case for proceeding with bankruptcy. This is a dangerous precedent.

In the wake of this verdict, defaulters will have found another time-gaining or dilly-dallying tool or tactic. NCLT or other bankruptcy forums would not be able to make much headway because they would be stymied by roadblocks or headwinds----both unnatural and man-made. In other words, the Gujarat High Court has unwittingly thrown a spanner in the RBI’s works. When the company law says that a creditor to whom more than the specified sum is due can file for compulsory winding up of the defaulting company, so be it. And when the newly crafted bankruptcy code 2015 says if 75 percent of creditors who have bid their time long enough feel the company cannot pay up and choose to press for its winding up through bankruptcy proceedings, so be it.

Because these are objective procedures, the ones based on impartial and non-discriminate touchstones. While courts and quasi-judicial forums can be counted upon to be impartial, they should not be burdened with the task of applying subjective norms in the first place before deciding to go ahead or not with what are admittedly pressing and festering issues.

All the affected parties, the government, the RBI and banks must file an appeal before the apex court praying for quashing the limited portion of the Gujarat High Court order that has the potential to slowdown NPA reforms.