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Disappointed with the ruling of the National Company Law Appellate Tribunal (NCLAT) in the Essar Steel case, its lenders are mulling various options such as moving the Supreme Court and seeking an amendment to the Insolvency and Bankruptcy Code (IBC).
Sources said bankers are likely to discuss the options with the Finance Ministry and push for amendments to the IBC to ensure that secured creditors get priority in the resolution process.
“Since resolution is not taking place on time in most cases, and banks are subsequently forced to take huge haircuts, what is the point of using the IBC route?” asked a senior bank executive.
The NCLAT earlier this month approved a ₹42,000-crore bid placed by ArcelorMittal to take over the stressed Essar Steel. But the lenders will have to take a larger haircut than originally planned, as the NCLAT said secured creditors will get only 60.7 per cent of their ₹49,473-crore claims while the rest will go to operational creditors, who will be treated on par with financial creditors.
“What is troubling is that secured, unsecured and operational creditors have been ranked at par. We will see further action in the Supreme Court going forward,” said Rajiv Anand, Executive Director, Axis Bank, on Thursday.
This issue was also raised by SBI Chairman Rajnish Kumar on Wednesday evening when he said the lenders will appeal to the Supreme Court against the NCLAT order. SBI is the lead lender to Essar Steel.
“Let us see what works. There have been amendments to the IBC in the past and, if required, there can be more. Let us be patient,” Kumar told reporters.
Disincentive for lenders
Placing operational creditors on par with secured financial creditors can be a disincentive, he noted. “We are a different class of creditor,” he said, adding that in liquidation, lenders are the top priority along with employees.
He warned that the ruling may make bankers hesitant to use IBC provisions to resolve stressed assets in future. He expressed hope that the Supreme Court will provide some clarity once they challenge the NCLAT’s Essar Steel order.
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