Comments
The Supreme Court on Friday upheld all the contentious provisions of the Insolvency and Bankruptcy Code (IBC) and reaffirmed the spirit of the law to ban defaulting promoters from bidding for their own assets.
Delivering the judgment on a petition filed by Bhushan Power and Steel promoter Sanjay Singal on Section 29A — which bans defaulting promoters from bidding for their stressed company — and a group of operational creditors, Justices RF Nariman and Navin Sinha said the provision of the bankruptcy law is legally valid.
Debt payback option
Though this observation prevents Essar Steel’s defaulting promoters, the Ruias, from bidding for their company, legal experts said they can take recourse under Section 12A to withdraw the insolvency application as they are willing to pay back the debt in full without any haircut to banks and operational creditors.
The Supreme Court also said the committee of creditors (CoC) of a distressed company does not have the last word on the subject. If the CoC arbitrarily rejects a just settlement or withdrawal claim, the NCLT (National Company Law Tribunal), and thereafter the NCLAT (National Company Law Appellate Tribunal), can always set aside such a decision under Section 60 of the IBC. “For all these reasons, we are of the view that Section 12A also passes constitutional muster,” said the order.
Interestingly, in the Essar Steel case, the CoC has approved the ₹42,000-crore bid placed by ArcelorMittal while not even considering the Essar Steel promoters’ offer to repay the entire debt of ₹54,000 crore.
The verdict comes less than a week before the Ahmedabad Bench of the NCLT is expected to rule on Essar Steel’s insolvency resolution plan and the validity of the Ruias’ bid. Since the ruling limits the powers of the CoC, it provides an opportunity for Essar Steel’s promoters to move the NCLT and NCLAT if its effort to repay the entire debt is rejected.
‘Preferred’ creditors
Uday Bhansali, President (Financial Advisory), Deloitte India, said the Supreme Court has put to rest most of the contentious issues raised so far. It has also upheld the preference given to financial creditors over operational creditors, he added.
Approving the IBC in totality, the court said flow of financial resources to the commercial sector in India has increased exponentially as a result of financial debts being repaid.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.