After a long-drawn legal battle, the Supreme Court of India on November 15 gave the ruling that ArcelorMittal can acquire Essar Steel for Rs 42,000 crore. The apex court over-ruled the appellate tribunal NCLAT which asked the banks to share the proceeds equally with the unsecured creditors as well. The apex court’s ruling is a landmark in the short history of insolvency and bankruptcy resolution in India. The verdict has clarified on important aspects of insolvency resolution that had been interpreted variously by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT).
Essar Steel was among the first list of the largest 12 stressed accounts that the Reserve Bank of India had drawn up in June 2017 and asked banks to refer to the NCLT and the company was formally sent to the tribunal on June 27, 2017. In fact, the Ruia family lost control of Essar in July 2017 including Essar Steel. Essar Oil was sold to a Rosneft-led group in 2017. Then last year, Essar Steel, saddled with debt, was auctioned off to ArcelorMittal. However, ArcelorMittal had to wait for taking control of Essar Steel after a judge at the National Company Law Tribunal in July upended the process by declaring that all a troubled company’s creditors — not just its banks — needed to be treated equally. Essar Steel’s debt burden has piled up as it owes around Rs 49,046 crore to the financial creditors. SBI has an exposure of Rs 13,222 crore to the company, excluding the working capital it has been extending to the company during resolution process.
To be sure, according to the October 2018 resolution plan, secured financial creditors would recover 92% or around Rs 42,000 crore of their total exposure of Rs 49,046 crore. Following this, the Ruias-run Essar Steel Asia Holding made a counter-offer to pay the entire amount in cash to bankers. But it was rejected the NCLT in January 2019. After this on March 8, the NCLT approved ArcelorMittal’s Rs 42,000 crore bid. And on November 15, the Supreme Court had set aside the NCLAT order which gave equal rights to both secured and unsecured creditors of Essar Steel and cleared the decks for its takeover by ArcelorMittal.
We have tried to investigate the legal aspect/challenges arise during CIRP process of Essar steel under Insolvency & Bankruptcy Code, 2016.
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