Essar Steel case: Supreme Court strikes down NCLAT order

Suresh P. Iyengar | | Updated on: Dec 06, 2021

Clears way for ArcelorMittal-Nippon Steel entry into India

The Supreme Court on Friday ruled that the Committee of Creditors has all rights to decide on distribution of funds realised from sale of insolvent asset and the adjudicating authorities cannot make changes into the approved resolution plan.

The judgement paved the way for ArcelorMittal takeover of Essar Steel in an insolvency process that has been going on for last 830 days. Justices Rohinton Nariman, Surya Kant and V Ramasubramanian in a judgement said the operational creditors cannot be treated on par with financial creditors. In exceptional cases, it also allowed extension of deadline at the discretion of adjudicating authority for resolving insolvency cases beyond the mandated 330 days prescribed in IBC.

Also read:Essar Steel case: Lenders move apex court against NCLAT judgment

The epic battle for takeover of Essar Steel by ArcelorMittal had taken many twist and turns. In fact, theEssar Steel insolvency process started when the steel prices were high and come to a close when  prices have hit a nadir amid weak economic outlook.

Read more:ArcelorMittal’s Rs 42,000-crore bid for Essar Steel gets NCLAT nod

ArcelorMittal’s spokesperson said the company is pleased with the judgment and the  resolution plan has been approved. It looks forward to the closing of the acquisition soon, the company added.

Wishing the best for ArcelorMittal and Nippon Steel  entry into the Indian market, an Essar spokesperson said they are acquiring a world-class facility in a market that has a long runway for growth. Sapan Gupta, Partner and National Head of Banking and Finance, Shardul Amarchand Mangaldas & Co said the judgement of the Supreme Court has recognised the difference between secured and unsecured creditors which is essential in the banking industry where majority lending is done on basis collateral. The Court has also given due recognition to the commercial wisdom of the lenders.

The judgment will see an influx of Rs 42,000 crore and wipe out a chunk of NPA, he said. Financial creditors of Essar Steel had moved the Supreme Court against the NCLAT decision to remove the nomenclature of financial and operational creditors and ordered distribution of Rs 42,000 crore to be paid by ArcelorMittal equally. While approving ArcelorMittal bid in July, NCLAT had enhanced the operational creditors’ dues to Rs 19,719 crore, against the earlier Rs 5,074 crore, by including the claims of Dakshin Gujarat, Gujarat Energy, BPCL, IOCL, GAIL, ONGC and NTPC.

The decision pushed the overall claims to Rs 69,192 crore from Rs 54,547 crore while the claims of financial creditors was retained at Rs 49,473 crore. Following the NCLAT order, financial creditors were to get Rs 30,030 crore and operational creditors' Rs 11,969 crore. The total cut to be taken by the financial creditors doubled to 40 per cent. The aggrieved banks moved the Supreme Court against the NCLAT order. In March, NCLT had approved ArcelorMittal’s resolution plan. Under the plan, 92 per cent of the total amount will be distributed among the financial creditors, while the operational creditors with dues of less than Rs 1 crore stand to get the remaining 8 per cent.

Published on November 15, 2019
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