IBC: So far, so good

Suresh P Iyengar Mumbai | Updated on November 18, 2019

Supreme Court verdict on Essar Steel to boost recovery of money through the evolving insolvency code

The Supreme Court verdict on Essar Steel has not only come as a relief to frustrated bankers, but will also boost recovery of money through the ever-evolving Insolvency and Bankruptcy Code.

The Supreme Court on Friday approved the acquisition of the Essar Steel asset by ArcelorMittal India at a transaction value of Rs 42,000 crore against admitted debts of Rs 49,473 crore.

The Essar Steel resolution marks the highest realisation among assets admitted in the first list under the Insolvency and Bankruptcy Code.

The overall default by the 12 large NPA cases admitted for resolution under the IBC in 2017 was about Rs 3.45 lakh crore.

Read also: Essar Steel case: Supreme Court strikes down NCLAT order

Interestingly, in the last two years, banks have managed to resolve only seven cases and recover Rs 1,13,876 crore through the so-called time-bound resolution. The total admitted claim in the seven cases was Rs 2,13,731 crore.

The realisation for banks from the NCLT process in the seven accounts was 53.28 per cent. However, it ranges between a low of 17 per cent for Alok Industries and 85 per cent for Essar Steel.

The recovery would have been abysmally low if not for Essar Steel and the 63 per cent recovery from Bhushan Steel. Tata Steel had paid Rs 35,571 crore of the admitted debt of Rs 56,022 crore of Bhushan Steel.

In a last ditch effort to retain the company, Essar Global Fund and other promoters of Essar Steel had offered a one-shot settlement of Rs 54,389 crore, payable in cash, to clear the admitted dues of all secured, unsecured and operational creditors of Essar Steel. However, the committee of creditors did not take it on record.

In February 2017, the RBI directed banks to refer 12 large NPA cases for resolution to the NCLT. Of the seven resolution processes concluded, the acquisition of Bhushan Power and Steel (BPSL) by JSW Steel is still hanging in the balance, as the latter had sought immunity from criminal proceedings against BPSL promoters.

Invoking the Prevention of Money Laundering Act, the CBI recently attached the BPSL promoters’ assets, including the asset being taken over by JSW Steel. CBI has refused to lift the freeze on sale of the asset despite the NCLAT direction.

The case will come up for hearing again on Monday and ultimately land in the Supreme Court.

Published on November 15, 2019

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