NCLAT reserves order on ArcelorMittal takeover of Essar Steel

Industry:    May, 2019

An appellate tribunal has reserved a final order on appeals against Arcelor Mittal’s Rs 42,000 crore resolution plan for debt laden Essar Steel.

A two-member bench of the National Company Law Appellate Tribunal (NCLAT) led by justice SJ Mukhopahdaya asked all parties to file final written submissions by Wednesday.

The NCLAT is hearing appeals against the acceptance of the resolution plan on multiple grounds including, discriminatory distribution among financial creditors, alleged ineligibility of Arcelor Mittal and discriminatory treatment towards operational creditors.

Standard Chartered, has appealed against the resolution plan as it is set to receive Rs 60.7 crore or only 1.7% of its admitted claims under the current plan while other secured financial creditors are set to receive approximately 89% of their admitted claims.

Besides discriminatory treatment, Standard Chartered has also argued that a Rs 2,500 crore component in the upfront payment by Arcelor Mittal does not constitute part of the bid for Essar Steel as it is to be paid over and above any bid for resolution in lieu of revenues generated by the company during insolvency proceedings.

The bench asked Arcelor Mittal to clarify whether it intended to stake claim to any part of Essar Steel’s earnings during insolvency proceedings warning that if it did, it’s plan may fail.

Essar Steel’s earnings during insolvency proceedings thus far are approximately Rs 4,287 crore according to counsel for the resolution professional.

In a separate appeal majority shareholder in Essar Steel, Essar Steel Asia Holdings has alleged that Lakshmi Mittal, promoter of Arcelor Mittal had ties to companies which had defaulted on debt obligations. Under the Insolvency and Bankruptcy Code, individuals with business ties to defaulting firms are ineligible to bid in the corporate insolvency resolution process.

Besides this, the bench will pass orders on key issues that have cropped up during proceedings including whether there can be different classes of financial creditors during the resolution process and whether the committee of creditors can decide the distribution of funds in a resolution plan.