Resolve Or Perish

The new insolvency code offers hope to banks reeling from outsize bad loans, but other legal hurdles remain.

- M.G. Arun

On July 17, the Gujarat High Court rejected a plea by Essar Steel challenging a Reserve Bank of India (RBI) circular asking banks to recover loans taken by the steel major—by making use of the Insolvency and Bankruptcy Code, 2016. Eleven other firms were also named in the circular. Some have outstanding loans ranging from Rs 5,165 crore to Rs 44,479 crore, according to figures published by the All India Bank Employees’ Association. Essar had contended that RBI’s order was ‘improper’, as it was already at an advanced stage of loan restructuring. But even as Essar was fighting its case in court, sources say the government had finalised a new list of indebted companies, 500 of them, whose cases would be referred to the National Company Law Tribunal (NCLT) under the insolvency code.

Insolvency is the state of being unable to pay one’s debts, which could lead to legal consequences for the insolvent entity—in this case, large Indian corporate houses. The HC order was eagerly awaited by corporates, bankers, consultants and legal experts alike, as it sets a precedent for all future cases under the new law, in a country where proceedings under the insolvency and bankruptcy code are at a nascent and untested stage.