SC sets aside NCLAT order, clears decks for ArcelorMittal to take over Essar Steel

The Supreme Court Friday set aside a NCLAT order which gave equal rights to the secured and unsecured creditors during the insolvency proceedings of debt-ridden Essar Steel, clearing the decks for its takeover by Lakshmi Mittal-led ArcelorMittal. Setting aside the National Company Law Appellate Tribunal (NCLAT) order, a 3-judge headed by Justice R F Nariman, said the two set of creditors will be treated differently during the insolvency proceedings and taking over of a debt-ridden firm by another company.

There is no principal of equality between secured and unsecured creditors, said the bench, also comprising Justices Surya Kant and V Ramasubramanian. "The NCLAT judgment which substitutes its wisdom for the commercial wisdom of the Committee of Creditors (CoC) and which also directs the admission of a number of claims which was done by the resolution applicant, without prejudice to its right to appeal against the aforesaid judgment, must therefore be set aside," said the bench.

The NCLAT had said that everybody (secured and unsecured creditors) will get 60.7 per cent of their dues in the event of takeover of a debt-ridden company by another firm under the Insolvency and Bankruptcy Code (IBC), said senior advocate Rakesh Dwivedi, who represented one of the parties in the apex court in the case. "The appeals filed by the CoC of Essar Steel Limited and other Civil Appeals are allowed. The impugned NCLAT judgment is set aside," the top court said.

Reacting to the verdict, Essar Steel said: "We wish ArcelorMittal 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 apex court clarified that the Corporate Insolvency Resolution Process of the debtor in this case will take place in accordance with the resolution plan of ArcelorMittal dated October 23, 2018, as amended and accepted by the CoC on March 27, 2019.

It has provided for amounts to be paid to different classes of creditors by following Section 30(2) and Regulation 38 of the IBC, the court added. It said the adjudicating authority can send back the resolution plan to the CoC for implementation in accordance with the guidelines but cannot change the commercial decision taken by the committee.

The bench also relaxed the timeline of 330 days to find a resolution plan as prescribed under the IBC. "It is only in exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the corporate debtor must take place beyond which the corporate debtor is to be driven into liquidation," it said.

The verdict came on the CoC plea challenging NCLAT's order of July 4 in which it had approved steel tycoon Lakshmi Mittal-led ArcelorMittal's Rs 42,000-crore bid for the acquisition of Essar Steel after the tribunal had rejected a plea by the lead shareholder of the debt-laden firm challenging the eligibility of the bidder. The National Company Law Appellate Tribunal (NCLAT) had, however, given operational creditors equal status as lenders in the distribution of the ArcelorMittal's bid amount among the creditors of Essar Steel.

Essar Steel was auctioned under the new IBC to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors.

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