Supreme Court orders status quo on Essar Steel resolution

Supreme Court orders status quo on Essar Steel resolution

Varun Marwah

The Supreme Court today ordered for status quo to be maintained in the case of Essar Steel. The status quo is with respect to the order of the NCLT order approving Arcelor Mittal’s resolution plan.

The NCLT on March 8, 2019 approved the resolution plan submitted by Arcelor Mittal for Essar Steel. In this plan, however, Standard Chartered bank (SCB)  was allotted only 1.7% of its total admitted claims while other financial creditors were recovering close to 92%. The NCLT in its order asked that a pro-rated distribution be done and SCB be given its due share accordingly. It appears that the acceptance of the resolution plan, however, was not conditional on increased payment to SCB and the NCLT merely asked the lenders to reconsider its decision.

SCB thus appealed against the NCLT order admitting the resolution plan at the NCLAT.  Simultaneously, appeals were filed by ex-directors of Essar Steel and some operational creditors as well, but the main dispute continues to be the share given to SCB as part of the resolution plan. The NCLAT also recently refused to stay operation of the resolution plan or the NCLT order approving the resolution.  A creditors’ meeting which was conducted subsequent to the NCLT order, and during NCLAT appeal pendency, decided to not increase the share given to SCB. The NCLAT demanded a report on the treatment made to all creditors, but did not come in the way of payment release by Arcelor Mittal to the lenders.

While the NCLAT orders so far continue to be in favour of lenders and Arcelor Mittal, it appears that SBI moved to the Supreme Court. It may have been due to the time being consumed at NCLAT and the delay in release of payment as a result of the conditional nod.  The conditional nod may be a cause of uncertainty, which prompted an appeal to the Supreme Court for a conclusive ruling. At the Supreme Court,  the counter-party, SCB, sought a stay on the payment to be made by Arcelor Mittal.

The Bench led by Justice Rohinton Nariman has now ordered status quo, which means that the payment to be made by Arcelor Mittal to the Essar Steel lenders  is now stayed.   The Court further stated that the NCLAT will decide the case expeditiously.

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