Lenders to Essar Steel and the insolvency resolution professional (IRP) have got into a tussle over whether banks can continue to exercise control over the bankrupt company’s cash flows or scrap the curbs to facilitate operations.
The IRP told the banks that the Insolvency and Bankruptcy Code prescribed that they must relax all controls on cash flows once a company is referred to the National Company Law Tribunal (NCLT), said two bankers familiar with the matter.
“Lenders have opposed the suggestion from the IRP and decided to seek legal opinion since they were not convinced,” said a banker who did not want to be identified.
Satish Kumar Gupta, the IRP from Alvarez & Marsal, had sought Rs 1,000 crore from the lenders to keep the company running and had requested the banks to lift the ‘tagging’ of Essar Steel’s accounts and end the ‘trust and retention’ practice. Tagging refers to the practice of banks diverting a portion of fund flows towards debt obligations. Trust and retention is a mechanism that allows the lead bank to operate the company’s main cash-flow account.
The lenders met for the second time late Friday to discuss the demand for Rs 1,000 crore and the meeting remained inconclusive, said two bankers who attended. Banks led by State Bank of India have lent Rs 45,655 crore to Essar Steel, one of the 12 companies against which the Reserve Bank of India ordered the start of bankruptcy proceedings.
Senior bank officials said the lenders are likely to retain Gupta as the IRP. Once the insolvency resolution process is initiated, the IRP takes charge of running the day-to-day operations of the company. The IRP is appointed by the NCLT and the lenders are required to decide on retaining or replacing the professional within a month.
