NCLAT gives Essar Steel to ArcelorMittal

Eight attempts of Essar Steel promoter Prashant Ruia to get back the company have come to naught with National Company Law Appellate Tribunal (NCLAT) on Thursday clearing steel tycoon Lakshmi Mittal-led ArcelorMittal's takeover of the embattled firm.

The tribunal said the issue of eligibility of ArcelorMittal India has been adjudicated upon after considering all the arguments in the Supreme Court and could not be re-opened before the Appellate Authority at a stage where the resolution plan approval is being considered.

Secondly, the judgment pronounced by the two-member NCLAT bench, headed by Justice S J Mukhopadhyaya on Thursday also has far-reaching implications on the role of Committee of Creditors (CoC).

The Tribunal said CoC has not been empowered to decide the manner in which the distribution of amount is to be made between one or other creditors. But CoC is only required to notify the viability, feasibility of the resolution plan.

Moreover, NCLAT has put financial and operational creditors on an equal footing to get proceeds from the insolvency amount. “...the 'Operational Creditors' should not be paid less than the amount they could have received in the event of liquidation out of the asset of the 'Corporate Debtor'.” read the judgment.

The financial creditors will get 60.7% of their admitted claims of Rs 49,473 crore. The rest would go to operational creditors, it said.

An Essar spokesperson in a statement said, “It appears that new facts regarding ineligibility under Section 29A, which emerged only after the previous judgement of the Supreme Court, have not been given due consideration. We are awaiting the detailed order and will decide our course of action thereafter.” 

NCLAT reasoned the logic for keeping financial and operational creditors at par, saying, in this case, it noticed “huge discrimination” by CoC in the distribution of the amount. “Creditors have been allowed 99.19% of their claim amount, whereas 'NIL' i.e. 0% in favour of the 'Operational Creditors'. Such distribution is not only discriminatory but also arbitrary,” observed the two-member bench.

Some of the operational creditors of Essar Steel include NTPC, ONGC, GAIL, Dakshin Gujarat, Gujarat Energy, Bharat Petroleum and Indian Oil.

Even the secured and unsecured financial creditors have been categorised having equal rights. “We hold that the 'Financial Creditors' cannot be discriminated on the ground of 'Secured' or 'Unsecured Financial Creditors' for the purpose of distribution of proposed amount amongst stakeholders in the 'Resolution Plan' by the 'Resolution Applicant',” the 116-page judgment read.

Now, the distribution of the insolvency proceeds will be done by the resolution applicant.

Essar Steel was auctioned under the new Insolvency and Bankruptcy Code (IBC) to recover Rs 54,547 crore of unpaid dues of financial as well as operational creditors. 

The NCLAT had earlier reserved its order over a batch of petitions against ArcelorMittal's Rs 42,000-crore takeover bid for Essar Steel as well as the distribution of funds among the creditors of the debt-ridden company.

Total claims of financial and operational creditors stand revised to Rs 69,192 crore.

ArcelorMittal had told NCLAT that it would pay Rs 42,000 crore, including a minimum guarantee of Rs 2,500 crore as working capital, for acquiring debt-laden Essar Steel under the insolvency process. Essar Steel was among the first 12 cases selected to be resolved under the IBC.