Supreme Court orders status quo in Essar Steel insolvency case

The Supreme Court Monday put on hold the sale of Essar Steel to ArcelorMittal as it agreed to hear the appeal filed by financial lenders against the NCLAT order, saying it would like to settle the issue “once and for all”. A bench of Justices R F Nariman and Surya Kant said the monitoring committee will continue its work till the case is heard on August 7.

“Once the Committee of Creditors (CoC) in their concerned wisdom had decided on division of assets, there should have been no re-distribution, like you are an Interim Resolution Professional (IRP). We would settle this issue once and for all,” the bench observed at the outset.

The bench was hearing a plea by CoC of Essar Steel challenging NCLAT’s July 4 order which approved steel tycoon Lakshmi Mittal-led ArcelorMittal’s Rs 42,000 crore bid for acquiring the debt-laden firm. The COC has sought quashing of the National Company Law Appellate Tribunal (NCLAT) order which had given financial creditors equal status with operational creditors in the distribution of the ArcelorMittal’s bid amount.

Essar Steel was auctioned under the new Insolvency and Bankruptcy Code (IBC) to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors. In its July 4 order, the NCLAT had said that financial creditors will get 60.7 per cent of their admitted claims of Rs 49,473 crore, almost same as operational creditors.

The operational creditors with admitted claim amount of less than Rs 1 crore would get 100 per cent, while above Rs 1 crore would get 60.26 per cent and workmen and employees would get 100 per cent. The tribunal had said that the CoC will have no role in the distribution of Rs 42,000 crore and allowed claims of the operational creditors such as Dakshin Gujarat, Gujarat Energy, Bharat Petroleum, Indian Oil, GAIL, ONGC, and the NTPC.

ArcelorMittal had told the NCLAT that it would pay Rs 42,000 crore, including a minimum guarantee of Rs 2,500 crore as working capital, for acquiring Essar Steel under the insolvency process. The tribunal said the apex court had settled the issue of eligibility of ArcelorMittal India and could not be re-opened before the Appellate Authority at a stage where the ‘Resolution Plan’ approval was being considered.

The Ahmedabad-bench of National Company Law Tribunal (NCLT) on March 8 approved the bid submitted by ArcelorMittal India for the takeover of Essar Steel.

Essar Steel director Prashant Ruia had challenged the order saying ArcelorMittal was ineligible to bid under Section 29A of the Insolvency and Bankruptcy Code as it was associated with delinquent or loan defaulting firms. ArcelorMittal had claimed that Ruia’s plea was one of the multiple mala fide attempts to derail the corporate insolvency resolution process.

The operational creditors had opposed ArcelorMittal’s resolution plan saying they were getting notional payment, while 92.5 per cent of the debt of financial creditors was being paid. In its order, the NCLAT had said that the amount of profit generated by Essar Steel during the corporate insolvency resolution process (CIRP) cannot be given to the successful resolution applicant ArcelorMittal as it has not invested any money.