Supreme Court Essar Steel judgment favours banks, says Nomura

The Supreme Court’s judgement on Essar Steel case that the committee of creditors (CoC) has the discretion to decide on the distribution of proceeds of a bankrupt firm will be positive for banks, brokerage house Nomura has said.

The apex court last week ordered Arcelor Mittal’s Rs 42,000 crore offer to acquire Essar Steel to be distributed according to the resolution plan approved by the CoC in October last year, implying 92 percent of secured financial creditors’ claims being settled.

Restoring the supremacy of financial creditors, the Supreme Court overruled National Company Law Tribunal's formula of equal distribution among the financial and operational creditors, which violated the commercially accepted norms of lending.

The operational creditors will get Rs 196 crores proposed by Arcelor plus another Rs 1,000 crores later allowed by the creditors' committee, taking the total repayment to Rs 1,196 crores.

According to Nomura, the State Bank of India (SBI) and ICICI Bank will be key beneficiaries from the judgement and the SBI could alone have a recovery of around Rs 12,000 crore.

The other big impact on resolutions going forward is from the apex court making it very clear that NCLT and National Company Law Appellate Tribunal (NCLAT) cannot interfere with the commercial decision of banks, it is simply not in their jurisdiction. This has been a key ask of banks which often had to redraw approved resolution plans because of judicial intervention.