The two-year long battle is now over and the Supreme court has finally decided the Essar Steel Insolvency case. In the ruling the Supreme Court has set aside the NCLAT judgement and said that the power to decide how to distribute the funds are with the Committee of Creditors. It also added that the operational creditors cannot be treated in the same was as the financial Creditor.
This decision will be a test for the Insolvency and Bankruptcy law of India. Earlier NCLAT in its judgement has said that the fund that would come from the bid will be distributed equally among the financial and the operational creditors. However, Supreme court has set aside the NCLAT judgement. It is a test of the Insolvency code and it will be seen how the apex court will distribute the money that would come from the resolution proceed between the class of creditors with different securities and will also see on the validity of the fix time limit for the resolution.
Issue was among the bank and the different class of creditors for the non-payment of due after the winding up bid. This issue arose when Esser Steel was brought to the to the National Company Law Tribunal, Ahmedabad in August 2017 for not paying Rs 54,550 crore due amount to the bank which includes the State Bank of India, ICICI, IDBI and the Syndicate Bank. Esser steel runs its steel plant in Hazira, Gujarat and has plant and steel hub in “Visakhapatnam and Paradip” and “Pune” respectively.
Other than ArcelorMittal there were many other suitors for Esser steel assets such as Numetal, JSW Steel and Vedanta. However, the winning bidders were ArcelorMittal which is owned by Lakshmi Mittal. ArcelorMittal in their plan offered to take the assets by paying an amount of Rs 42,000 crore and an additional Rs 8,000 crore of equity infusion into the plant.
How did the match reach Supreme Court?
In October 2018 the committee of creditors approved ArcelorMittal bid and in March 2019 NCLT also approved their bid. But NCLAT was not happy and said that the money realised should be distributed in proportionality among the Financial and Operational Creditors. This order of NCLAT was not accepted by the financial creditor as their priority rights was reduced. The day after the NCLAT judgement was passed changes were paid in the Bankruptcy Law which protected the rights of financial creditors and gave them the priority in getting the proceeds from the sale or liquidation of the company that has become Insolvent.
Time limit relaxed
Further, Supreme Court held that the time limit of 330 days can be relaxed if there is a bona fide cause and an exceptional reason to extend the time. Before the amendment came in July this year time limit was 270 days.
After the judgement came, the corporate people are happy that now the law is in par with the international standards as across the world it generally takes 2 to 2.5 years to complete the insolvency process.