The Supreme Court on Friday said the National Company Law Appellate Tribunal (NCLAT) should not interfere with the decisions of the committee of creditors (CoC) in the Essar Steel insolvency case. In doing so, the apex court has given more weight to the financial creditors.
The Supreme Court decision overrules NCLAT’s July 5 judgment that operational creditors should be treated on a par with financial creditors for distribution of funds from ArcelorMittal’s bid in the Essar Steel insolvency case. The verdict paves the way for Arcelor’s takeover of the bankrupt company.
The CoC had filed petitions against NCLAT’s judgment, challenging that they should recover more than operational creditors in the bankruptcy resolution process.
In July, the appellate tribunal had ordered equal distribution of funds among all classes of creditors, with financial and operational lenders having claims above ₹1 crore to recover 60.7% of their total dues. For financial creditors, it was a sharp haircut compared to 89.8% as per the CoC’s revised funds distribution plan.
NCLAT had also said all operational creditors including employees with claims below ₹1 crore were to recover 100% of their dues. As of July, total debt in the Essar Steel case had inflated to ₹69,192 crore following fresh claims by some operational creditors, the court had said.
The court had also observed that CoC was discriminatory in splitting the funds between financial and operational creditors and had said the committee was not authorised to decide on funds distribution. Standard Chartered PLC, which is a secured financial creditor and has an exposure of more than ₹3,500 crore to Essar Steel, received discriminatory treatment from CoC, NCLAT had said in its 5 July order.
Operational creditors to Essar Steel had admitted claims worth ₹4,976 crore against which they will receive only ₹1,200 crore under ArcelorMittal’s resolution plan, while Standard Chartered Bank was to recover ₹60.71 crore as per CoC’s distribution plan.
The Ahmedabad bench of National Company Law Tribunal had in March 2019 approved global steel-giant ArcelorMittal’s bid for Essar Steel. ArcelorMittal had offered an upfront cash payment of about ₹42,000 crore to the financial creditors and capital infusion of ₹8,000 in the next few years.
ArcelorMittal’s offer did not cover operational creditors to Essar Steel, which is promoted by the Ruias. The case was admitted to NCLT in August 2017 for insolvency proceedings after it was identified by the Reserve Bank of India in its first list of 12 big loan defaulters.