Essar Steel insolvency: Supreme Court sets aside NCLAT Judgement, gives upper hand to Banks

Essar Steel insolvency: Supreme Court sets aside NCLAT Judgement, gives upper hand to Banks

Essar Steel insolvency: Supreme Court sets aside NCLAT Judgement, gives upper hand to Banks

Ruling on the long fought Essar Steel insolvency case, the Supreme Court on November 15 set aside NCLAT judgement and said that the ultimate discretion on distribution of funds was with the Committee of creditors.

The Committee of Creditors (COC) consists of banks.

The NCLAT had earlier said that the funds from the winning bid should be distributed equally among operational and financial creditors.

The issue saw a keen tussle among the banks and separately between the financial institutions and Essar Steel's operational creditors who alleged that ArcelorMittal's winning bid did not meet their dues.

ArcelorMittal already won the bid for Essar Steel, having got the NCLT approval for its Rs 42,000 crore bid. The Supreme Court order now paves the way for the world's largest steelmaker to begin the acquisition process, and finally get a presence in what is still among the fastest growing steel markets in the world.

This is especially relevant now, given that the steel industry overall is going through a slump, and ArcelorMittal has been forced to cut production in many of its facilities globally.

“We are very pleased with the judgment that our resolution plan has been approved. We look forward to the closing of the acquisition soon,” said ArcelorMittal spokesperson.

This will also mark the exit of the Essar Group from the steel business, once their crown jewel. The Group continue to rue that the CoC didn't consider its offer of Rs 54,389 crore, which they claim would have paid off all creditors.

"We wish Arcelor Mittal 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," an Essar spokesperson said.

The decision

The court has held that it is the bank's decision to maximise the value of he corporate debtor and added that the CoC should also balance the interests of all stakeholders.

"The judgement is like a breath of fresh air, and of economic freedom. This is one of the most important, if not the most important, judgement in the history of bankrupcty law," said Ashwin Bishnoi, Partner in the Corporate and Commercial Practice Group in law firm  Khaitan & Co. The finer print of the order, he added, needs to be studied.

"It's a big win for lenders," added an executive from the industry.

"Finally, we have parity with international standards. Nowhere, are unsecured creditors treated on part with secured creditors," added the executive.

The court has added that the NCLT cannot interfere with the commercial decisions taken by the COC and that, if the NCLT finds that legal parameters are not met, it can send it back to COC but not tinker with the plan.

Essar Steel owes about Rs 49,000 crore to dozen banks. State Bank of India has among the highest exposure, with over Rs 15,000 crore.  Others include ICICI Bank, IDBI Bank and Syndicate Bank.

Overall, industry executives point out that Essar Steel has among the highest realization for an insolvency case, which usually averages around 53 percent. In the case of Essar Steel, the lenders will realise 85 percent of their exposure.

Timeline relaxed

The Supreme Court also relaxed the timeline of 330 days prescribed in the IBC. It said that the NCLAT was open to extend the timeline, if required.

In July this year, the government made amendments to the IBC, revising the time limit to 330 days, from the earlier 270 days.

A Business Standard report said that the average time taken for completing insolvency cases under the IBC is 374 days.

"The Court has made it clear that 330 days is not mandatory. And it gives room whenever there is a bona fide or exceptional reason to extend the time frame," said Bishnoi. World over, it takes about two-and-a-half years so cases to be settled, he added.



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