Long and winding road

After a long legal slugfest, the insolvency proceedings with respect to Essar Steel — first admitted under IBC over 580 days ago — made some headway last week. The National Company Law Tribunal (NCLT) approved ArcelorMittal’s ₹42,00-crore offer to lenders. But with the promoters of Essar Steel filing an appeal before the National Company Law Appellate Tribunal (NCLAT) challenging the NCLT order, it looks like there is more legal drama to come. Essar Steel, which was among the first 12 big defaulters that banks had sought to resolve under the RBI’s directive in 2017, has seen some high-stakes legal wrangling, testing various points of law in the Code. This journey has thrown up chinks in the IBC process; it highlights how interim litigations are a drag on the 270-day timeline. For instance, Section 29A, introduced to keep out errant and wilful defaulters from buying back assets, has led to prolonged litigations questioning the eligibility of bids. While both ArcelorMittal and Numetal had submitted the resolution plans a little over six months after the NCLT first admitted the case, the resolution professional had found both to be ineligible under Section 29A. The case since then has been bounced around in various courts. It was only in October last year that the Supreme Court cleared the air and gave one more opportunity to both resolution applicants to pay off the NPAs of their related corporate debtors and resubmit their resolution plans.

The promoters of Essar Steel had challenged the insolvency proceedings in January this year under Section 12A of the Code (newly introduced last year) by offering to pay a full debt settlement of ₹54,389 crore, far higher than ArcelorMittal’s bid. The NCLT had rejected the proposal, stating that under Section 12A withdrawal from IBC could only be sought by applicants — financial/operational creditors. This issue of interpretation could stall the completion of the process. The promoters of Essar Steel have stated that they will appeal to the NCLAT against the NCLT order on the grounds that their compelling offer should pass muster under Section 12A. Given that in all recent cases, including Bhushan Power & Steel, seeking maximum value from resolution has been accorded priority, how the NCLAT views Ruias’ offer will be interesting to see. It also needs to be seen if the NCLT’s order that directs the Committee of Creditors to consider sharing 15 per cent of ArcelorMittal’s bid with operational creditors goes down well with financial creditors. Standard Chartered Bank, one of the creditors, will appeal against the NCLT’s order.

This brings us back to the core issue of endless litigations leading to delays in the IBC process, diluting the intent of the Code. Capping the time taken for interim litigations is imperative. Above all, the powers-that-be will have to take an unequivocal stance on late bids derailing timelines.

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