Essar Steel insolvency case: Lenders to gain more, Arcelor tells NCLT

Defending itself against Standard Chartered Bank from diluting its bid for Essar Steel, ArcelorMittal on Thursday told the National Company Law Tribunal’s Ahmedabad Bench that lenders would gain more from the deal. The bank alleged that as against an upfront payment of Rs 42,000 crore, in addition to working capital adjustments of Rs 2,500 crore, the LN Mittal-led firm negotiated its bid downwards in collaboration with State Bank of India-led Committee of Creditors (CoC).

The bank said it has been discriminated in ArcelorMittal's resolution plan, which both the firm and the CoC have refuted.

ArcelorMittal told the two-members NCLT Bench, comprising adjudicating authorities Harihar Prakash Chaturvedi and Manorama Kumari, contrary to the bank’s claims its resolution plan was openly negotiated by members of the CoC to include an upfront payment of Rs 39,500 crore as well as a guaranteed working capital adjustments worth Rs 2,500 crore. The company said it was committed to passing on any additional working capital accrued with Essar Steel to lenders at the time of acquisition as valued by an independent auditor.

"Ordinarily a successor gets the working capital but what we did was to give away this working capital to lenders. Other than Rs 42000 crore, I also complied with Supreme Court (SC) ruling to settle dues worth Rs 7000 crore (in Uttam Galva and KSS Petron) as well as infusing Rs 8000 crore as equity," ArcelorMittal's legal counsel told the NCLT bench.

However, SCB's counsel's argued that the any such working capital were to be paid to lenders in any case. According to SCB, the request for proposal (RFP) invited for bids had anyway required for working capital adjustments to be stated over and above the upfront payment component. Further, citing a September 26, 2018 letter of CoC's counsel to members, SCB told NCLT that the lenders' committee had admitted that the upfront payment was Rs 42000 crore and not Rs 39500 crore as was being claimed by CoC.

Cross arguments between legal counsels of CoC and SCB also took place on Thursday over legality of the manner in which ArcelorMittal's bid was approved and the equitable distribution of commercials in the plan or lack of it.

Citing the SC ruling in the recent Swiss Ribbons case where the apex court quoted United Nations Commission on International Trade Law (UNCITRAL) Guidelines, CoC told NCLT that equitable treatment must be ensured between lenders with "similar legal rights". However, in the Essar Steel case, SCB was not a lender with similar legal rights as unlike other CoC members who had direct charge or security of ESIL's project assets, it had the latter's pledged shares in one of its subsidiaries instead.