Ahmedabad/New Delhi: The fate of operational creditors in the Essar Steel insolvency case hangs in the balance, with the Supreme Court on Monday rejecting their petitions to stay the proceedings, and the bankruptcy tribunal’s Ahmedabad bench reserving its order on their challenge.
The operational creditors are challenging the decision of Essar Steel Ltd’s lenders and resolution professional accepting the resolution plan filed by ArcelorMittal. The ₹42,000 crore plan proposes to repay lenders, but does not cover dues of ₹15,000 crore owed to operational creditors. Essar Steel owes over ₹49,000 crore to more than two dozen banks, led by State Bank of India.
The Ahmedabad bench of National Company Law Tribunal (NCLT) said it will continue hearing the matter on Tuesday, exceeding the 11 February deadline set by National Company Law Appellate Tribunal (NCLAT). The bench said that it will take written submissions from operational creditors in a day or so, after which it will pass its order. The tribunal did not specify when it will pass an order.
The two-judge NCLT bench also agreed to hear a fresh petition by Prashant Ruia and Essar Group executives seeking to set aside the ArcellorMittal’s winning bid.
Counsel for Bharat Petroleum Corp. Ltd (BPCL), one of the 30-odd operational creditors, argued that Essar Steel’s liquidation value is below ₹14,000 crore. So, if ArcellorMittal pays thrice that amount, the excess amount must be distributed equally among all creditors, both financial and operational.
ArcelorMittal’s Essar Steel bid envisages an upfront payment of ₹42,000 crore to lenders and an additional ₹8,000 crore towards capital expenditure.
Earlier in the day, the Supreme Court dismissed petitions by the operational creditors, clearing the way for the NCLT bench to decide on the matter.
The operational creditors were challenging two orders issued by NCLAT—first on 23 January and the second on 4 February—both asking the Ahmedabad bench to pass its order on the Essar Steel case by 11 February.
Solicitor general Tushar Mehta, appearing for Indian Oil Corp. Ltd (IOCL), one of the operational creditors, argued the company would need more time to argue before the NCLT.
Kamaljeet Singh Ahluwalia, another operational creditor, said the two orders were against settled legal propositions and the principles of natural justice. According to the petitioner, the NCLAT erred in passing these orders and dictating the procedure to the NCLT in conducting a matter, which is contrary and beyond its jurisdiction.
“The appellate authority, while exercising powers under Section 61 of the Insolvency and Bankruptcy Code, 2016, cannot assume supervisory jurisdiction over the adjudicating authorities and issue directions dictating the procedure to conduct the hearing of applications before the adjudicating authority," Ahluwalia’s petition said.
On 4 February, a two-member NCLAT bench headed by its chairperson Justice S.J. Mukhopadhaya said only after the matter had been heard at NCLT Ahmedabad, would the appellate tribunal hear it on 12 February.
The NCLAT said this while hearing a petition filed by the committee of creditors (CoC) of Essar Steel, through State Bank of India, against resolution professional Satish Kumar Gupta and others.
The appellate tribunal had also asked operational creditors to choose one representative as the bench will not hear all of them individually.
In a setback for the promoter, Ruia family, the Ahmedabad bench had turned down a bid by Essar Steel Asia Holdings Ltd (ESAHL) to regain control over the debt-laden Essar Steel.
The Ruias have been seeking withdrawal of the petition under Section 12A of the IBC, which allows this subject to approval by 90% of the creditors and the NCLT. Their offer was made on a day when more than 92% of creditors to Essar Steel voted in favour of handing over the company to ArcelorMittal Netherlands BV.
The Ruia family-backed ESAHL holds 72% of shares in Essar Steel. The NCLT decision paves the way for ArcelorMittal to move closer to its plan for acquiring Essar Steel.
In October, the Supreme Court allowed ArcelorMittal and Numetal to bid for Essar Steel, provided they cleared the dues of defaulters connected to them within two weeks. The committee of creditors, on 25 October, voted in favour of handing over the company to ArcelorMittal after it cleared pending dues to Uttam Galva and KSS Petron.
While the statutory requirement is to close insolvency cases within 270 days, the Essar Steel case has already passed more than 550 days.
Essar Steel runs a 10-million-tonne steel mill at Hazira in Gujarat, which is involved in ore beneficiation, pellet making, iron making, steel making, and downstream facilities.