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legal | IST

Essar Steel: Supreme Court sets aside NCLAT order, clears decks for takeover by ArcelorMittal

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The SC also relaxed timeline of 330 days to find a resolution of the stressed asset as prescribed in IBC. The court also said that the NCLAT can extend the timeline if required.

The Supreme Court in the Essar Steel-ArcelorMittal case has set aside the National Company Law Appellate Tribunal's (NCLAT) ruling that provided for equal distribution of proceeds between financial and operational creditors.
This means the distribution of claims will progress as per the winning bid of ArcelorMittal as approved by the Committee of Creditors (CoC).
ArcelorMittal’s spokesperson said, “We are very pleased with the judgment that our resolution plan has been approved. We look forward to the closing of the acquisition soon.”
Essar spokesperson, in an emailed statement, said, ""We wish Arcelor Mittal and Nippon Steel the very best on their entry into the Indian market. They are acquiring a world-class facility in a market that has a long runway for growth."
The SC also relaxed timeline of 330 days to find a resolution of the stressed asset as prescribed in IBC. The court said that it open for the NCLAT to extend the timeline if required.
The court has clarified that financial creditors enjoy primacy and NCLT cannot interfere with the commercial decisions taken by the CoC, potentially clearing the decks of its takeover by ArcelorMittal SA.
Justice Nariman, while pronouncing the order, said, no doubt the ultimate discretion on distribution is with CoC but its decision should also balance the interests of all stakeholders.
He said, "NCLT cannot interfere with the commercial decisions taken by the CoC," adding, "If the NCLT finds that legal parameters are not met, it can send back to CoC, not tinker with the plan."
On July 22, the top court had put on hold the sale of Essar Steel to ArcelorMittal as it agreed to hear the appeal filed by lenders against the NCLAT order, saying it would like to settle the issue "once and for all".
On August 1, Parliament had approved changes in the three-year-old IBC providing greater clarity over the distribution of proceeds of the auction of loan defaulting companies, with the Lok Sabha passing the Bill with a voice vote.
The Insolvency and Bankruptcy Code (Amendment) Bill 2019 gives CoC of the loan defaulting company explicit authority over the distribution of proceeds in the resolution process and fixes a firm timeline of 330 days for resolving cases referred to the IBC.
Among others, the approved resolution plan would be binding on central and state governments as well as various statutory authorities.
Essar Steel was auctioned under the new IBC to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors. In its July 4 order, the NCLAT had said that financial creditors will get 60.7 percent of their admitted claims of Rs 49,473 crore, almost same as operational creditors.
The operational creditors with an admitted claim amount of less than Rs 1 crore would get 100 percent, while above Rs 1 crore would get 60.26 percent and workmen and employees would get 100 percent.
The tribunal had said that the CoC will have no role in the distribution of Rs 42,000 crore and allowed claims of the operational creditors such as Dakshin Gujarat, Gujarat Energy, Bharat Petroleum, Indian Oil, GAIL, ONGC, and the NTPC.
ArcelorMittal had told the NCLAT that it would pay Rs 42,000 crore, including a minimum guarantee of Rs 2,500 crore as working capital, for acquiring Essar Steel under the insolvency process.
The tribunal said the apex court had settled the issue of eligibility of ArcelorMittal India and could not be re-opened before the Appellate Authority at a stage where the 'Resolution Plan' approval was being considered.