SC puts Essar Steel’s sale to ArcelorMittal on hold

Suresh P Iyengar Mumbai | Updated on July 22, 2019

‘Once creditors panel had decided on the asset division, there should have been no redistribution’

The Supreme Court has ordered ‘status quo’ on the National Company Law Appellate Tribunal’s (NCLAT) approval of ArcelorMittal’s bid to acquire the insolvent Essar Steel.

Hearing the petition filed by aggrieved secured financial creditors on Monday, the Supreme Court said it will hear the case in detail and posted the matter for hearing on August 7.

“Once the Committee of Creditors (CoC) in their wisdom had decided on the division of assets, there should have been no redistribution, like you are an Interim Resolution Professional. We would settle this issue once and for all,” observed a Bench of the Supreme Court. The ruling comes as a major relief for secured creditors.

On July 4, the NCLAT had approved the ₹42,000-crore bid of ArcelorMittal to take over Essar Steel but placed the operational creditors of the stressed company on par with its secured lenders for the distribution of the recovered money. Such a plan would lead to the banks incurring bigger losses than envisaged earlier.


Lenders’ petition

In their petition filed with the Supreme Court, the lenders of Essar Steel had said the NCLAT’s impugned judgment had misconstrued and misinterpreted the provisions of the Insolvency and Bankruptcy Code, 2016, (IBC) to such an extent that it almost rewrote the statute itself, and thus suffered from fatal jurisdictional errors apart from basing itself on glaring factual errors.

The CoC had said the judgment put the resolution of one of the largest non-performing assets of the country in jeopardy and unsettled the otherwise settled principles of law recognising and protecting the rights of secured creditors. The NCLAT had also held that the CoC could not be allowed to negotiate a deal with the bidders and decide on the distribution of claims, as it would lead to a conflict of interest.

It had ruled that all operational and financial creditors with claims above ₹1 crore would get about 60 per cent of their claim while those with claims less than ₹1 crore would receive their dues in full.

It also enhanced the operational creditors’ dues to ₹19,719 crore from ₹5,074 crore by including the claims of Dakshin Gujarat, Gujarat Energy, BPCL, IndianOil, GAIL, ONGC and NTPC.

Reduced debt recovery

The ruling had upset the secured financial creditors as their share of debt recovery would go down to ₹30,030 crore against their approved claim of ₹49,473 crore.

This would lead to a hair cut of 40 per cent against the less than 20 per cent suggested by the resolution plan.


Published on July 22, 2019

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