The Supreme Court on Thursday said the National Company Law Tribunal (NCLT) and the Appellate Authority (NCLAT) should refrain from interfering in insolvency resolution proceedings by the Interim Resolution Professional and the Committee of Creditors of the lender banks of a sick enterprise under the Insolvency and Bankruptcy Code.
Making it clear that the role of adjudicating bodies — NCLT and NCLAT — come only after resolution plan is finalised, a bench of Justice Rohinton Fali Nariman and Justice Indu Malhotra said that by their “jumping in” when the proceedings before IRP and CoC is going on is like throwing spanner and everything goes.
Emphasising that “None of these steps by the CIRP and the CoC could be interdicted in between”, court said, “They (NCLT and NCLAT) are not supervisory authority to see what is happening, who was invited, who not…”
Making it clear that the adjudicating authorities don’t come into picture when resolution process is before IRP and CoC, Justice Nariman said it is only after the resolution plan is finalised that the “adjudicating authorities can look into the whole thing including if it is in accordance with the law.”
The court said this in the course of the hearing of a petition by ArcelorMittal on challenging the NCLAT order directing it to clear Rs 70 billion liability now beleaguered Uttam Galva and KSS Petron with whom he was previously associated by virtue of his 29 per cent holding.
The court said that “everything is wrong” in the case of resolution proceedings on Essar steel.
“Here, everything is wrong, from top to bottom. Adjudication is wrong,” said Justice Nariman.
The court’s observation that both NCLT and NCLAT should remain at bay till corporate resolution proceedings are being conducted by the resolution professional and the CoC came while it agreed with senior counsel Harish Salve that till the insolvency proceedings are being carried out by the resolution professional and CoC within the timeframe of 270 days, the adjudicating bodies should stay away.
The only question or concern in the corporate resolution proceedings, court said is “How do you propose to lift the company out of weeds.”
The court said this as Salve advocated that CoC which is the main force for the hammering of the resolution plan should have an elbow room to deal with the interested parties as the goal is “maximisation of value” of the entity facing proceedings under IBC.
“Anything that maximises the value (of entity facing insolvency proceedings) and stays within 270 days (180 plus 90 as provided under IBC), NCLT should stay away, Salve told the bench.
He said that IBC could not be read in a wooden fashion where a person with a good resolution plan is ousted mere because he is in default somewhere else. He said that CoC can always ask him to clear the default and entertain his plan.
Liquidation of assets is an option that is always there, Salve said pointing out that liquidation would not result in maximization of value but would result in their minimisation.
The court asked Salve and also senior counsel Gopal Subramaniam to give a note on alternate permutation and combination if a resolution plan suggested by the resolution plan accepted by the CoC is junked at the stage of NCLT, NCLAT and the Supreme Court and all these stages consume three years.
“If process starts again what we do,” Justice Nariman asked.
Salve told the court that there should not be no “interception of resolution profession and CoC by the NCLT. NCLAT or by the High court under Article 226 till the plan is finalised as profession resolution is not a statutory proceedings.”
The day long proceedings also saw Salve telling the court that even if he was willing to pay Rs 70 billion — an eligibility condition saddled by the NCLAT for ArcelorMittal to be eligible to bid Essar Steel — that would not be an easy task.
Payment of Rs 70 billion, Salve told the court would result in tax liabilities for Uttam Galva and KSS Petron and also asked in what capacity he would be making these payments.
Pointing to the “much fuss” over the putting Rs 70 billion in escrow account, Salve said, “I can’t pay for Uttam Galva as it will become taxable. It is not as easy as that you pay (to become eligible). You have to go through regulatory mechanism. There has to be a corporate structure to pay.”
NCLAT has saddled ArcelorMittal to clear Rs 70 billion liability of Uttam Galva and KSS Petron as it was associated with these two companies.
ArcelorMittal is contesting this liability saying that he had divested its stakes at loss not for being eligible to bid for Essar Steel but described it as bad investment.
Source: Business-Standard