A number of large loan defaulters may follow the footsteps of Essar Steel by approaching courts to block bankruptcy proceedings against them, after the steelmaker got a stay on hearings on an insolvency petition moved by a bank.

Essar Steel is among a dozen defaulting companies identified by the Reserve Bank of India for speedy recovery under the Insolvency and Bankruptcy Code after the regulator was empowered by the government to direct lenders to take action against defaulters. Hearings in the RBI-identified cases started at the National Company Law Tribunal (NCLT) last week.

On Tuesday, Essar Steel filed a ‘special civil application’ in the Gujarat High Court challenging the proceedings initiated by Standard Chartered, seeking its intervention on grounds that the company was discriminated against by the RBI and lenders since they have given other defaulters six months to come up with a restructuring plan. On the plea, the high court stayed further hearings in the Essar Steel case before NCLT’s Ahmedabad bench.

Lawyers said while the new recovery law does not give powers to civil courts to stall bankruptcy proceedings, the companies may approach courts alleging discrimination, as Essar has done.

"I think each company has different circumstances but these borrowers can challenge the RBI circular because the RBI has handpicked these 12 companies over other defaulters,” said Nishit Dhruva, managing partner at law firm MDP & Partners.

In a communication on June 15, the RBI advised banks to initiate insolvency proceedings against Bhushan SteelBSE -1.55 % (Rs 44,478 crore), Lanco Infra (Rs 44,365 crore), Essar Steel (Rs 37,284 crore), Bhushan Power (Rs 37,248 crore), Alok Industries (Rs 22,075 crore), Amtek Auto (Rs 14,075 crore), Monnet Ispat (Rs 12,115 crore), Electrosteel SteelsBSE 0.63 % (Rs 10,274 crore), Era Infra (Rs 10,065 crore), Jypaee Infratech (Rs 9,635 crore), ABG Shipyard (Rs 6,953 crore) and Jyoti Structures (Rs 5,165 crore). The NCLT has so far admitted Jyoti Structures' case for insolvency proceedings.

People dealing with some of the defaulters on the RBI list said they may also consider approaching courts. The companies themselves didn’t make any comment.

All of Essar Steel’s lenders have classified their loans to the company as bad. State Bank of IndiaBSE 0.16 %, the lead bank, has received consent from 89% of the lenders to initiate insolvency resolution proceeding on Essar Steel. StanChart has opted to pursue its case separately.

In its petition, Essar Steel contended that it had cleared Rs 3,467 crore of dues and argued that an admission by the NCLT of the insolvency application would transfer the administration of an otherwise healing company into the hands of an interim resolution professional.

The steel company also challenged setting March 2016 as the cut-off date for defaults as it does not take into development thereafter. While bankers say that as long as the company is classified as in default they have the right to approach the NCLT for recovery of arrears, lawyers say that the resolution of these non-performing assets may happen only after a long protracted battle.

“Other borrowers short-listed by the RBI will also take this opportunity; why not? Soon we may start seeing others also challenging the RBI circular,” said Meenakshi Iyer, partner at Advaya Legal. “This is a question of an entire company being wound up so these borrowers are likely to fight tooth and nail against it.”