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The Supreme Court today set aside the order of the NCLAT in the Essar insolvency case and upheld the claims of the Committee of Creditors (CoC).
The judgment was passed by a Bench of Justices Rohinton Nariman, Surya Kant and V Ramasubramanian.
The Court held that the NCLAT could not have interfered with the decision of the CoC, which is based on its commercial wisdom. Thus, the resolution plan as advanced by ArcelorMittal in 2018 will continue to operate.
It was also held that under the principle of parity, the secured and unsecured creditors cannot be treated to be equal.
The CoC of Essar Steel had filed an appeal against the NCLAT order which was passed in July this year. The CoC had modified the distribution of Rs 42,000 crore promised in the resolution plan amongst Essar Steel’s financial and operational creditors.
Standard Chartered Bank, one of the financial creditors of Essar Steel, had challenged ArcelorMittal’s resolution plan on the ground that the approval process adopted by the CoC was illegal and discriminatory. The challenged was filed before the National Company Law Appellate Tribunal (NCLAT).
Essar Steel Asia Holdings Limited intervened in the appeals by the Directors and stated that ArcelorMittal’s resolution plan ought to be rejected as they fraudulently suppressed and misrepresented the status of its related companies, which are Non-Performing Assets (NPAs).
However, in July, the NCLAT had approved ArcelorMittal’s resolution plan for Essar Steel.
Holding that there could be no classes of financial creditors on the basis of being secured and unsecured, the NCLAT directed that all financial creditors having a claim amount of over Rs 1 crore would be entitled to 60.7% of their admitted claim. It had also awarded around 60% of the admitted claim to certain operational creditors having claims of more than Rs 1 crore.
The NCLAT also stated that the profits of Essar Steel, if any, during the pendency of the insolvency, would also be distributed among the creditors on a pro rata basis. The Appellate Tribunal further accepted additional claims by ONGC and NTPC, thus taking the total claim amount to almost Rs 69,193 crore.
In July this year, the Supreme Court Bench of Justices Rohinton Nariman and Surya Kant had ordered that status quo be maintained in the insolvency case till the adjudication of the matter. The Court had said that it will decide on the legal issues once and for all and had added that the case would be heard expeditiously.
ArcelorMittal was advised by the team led by Ruby Singh Ahuja, Vishal Gehrana, Anupm Prakash and Utkarsh Maria from Karanjawala & Co along with the team headed by Sudhir Sharma, Abhishek Swaroop and Naman Bagga from L&L Partners.
[Read the Judgment]