Essar Steel Insolvency: Supreme Court Gives Operational Creditors A Week To Challenge IBC Amendments

Recent amendments to Insolvency and Bankruptcy Code, passed by the Parliament and awaiting President’s assent, were brought to the notice of the Supreme Court by a section of creditors on Wednesday.

A bench of Justice RF Nariman and Justice Surya Kant was told by some operational creditors in the Essar Steel insolvency case that they will be challenging the new IBC amendments passed by the Parliament as they affected them.

The Supreme Court sought assistance of the Attorney General of India in the matter and requested him to be present on Aug. 19.

The bench was hearing a plea by the committee of creditors of Essar Steel challenging National Company Law Appellate Tribunal’s July 4 order which approved Lakshmi Mittal-led ArcelorMittal SA’s Rs 42,000-crore bid for acquiring the debt-laden firm.

The committee of creditors has sought quashing of the NCLAT order which had given financial creditors equal status with operational creditors in the distribution of ArcelorMittal's bid amount for Essar Steel.

On Wednesday, the Supreme Court gave a week to the operational creditors to file a writ petition challenging the new IBC amendments and sought assistance of Attorney General KK Venugopal in the case.

“During the course of hearing, we have been apprised of the fact that IBC amendments have been passed by both houses of the Parliament. The counsel for respondents (operational creditors) take umbrage to some of these amendments and they want to challenge them by way of writ petition,” the bench said.

“We request the attorney general to be present on the next day of hearing,” it said and ordered the listing of the Essar Steel insolvency case on Aug. 19 along with the writ petitions to be filed within a week.

At the outset, the bench observed that the new IBC amendments passed by the Parliament may have some bearing in the Essar Steel insolvency case and said that it would be better if the matter is heard after some time.

When some counsels said that the new amendments may affect the interest of operational creditors in the case, the bench said it is of the prima facie view that operational creditors cannot be simply asked to go home.

The counsels for operational creditors of Essar Steel said that they may challenge the new IBC amendments, to which the bench said that they should file the writ petitions challenging the same within a week.

On Aug. 1, Parliament had approved changes in the three-year old IBC providing greater clarity over the distribution of proceeds of the auction of loan defaulting companies, with the Lok Sabha passing the bill with voice vote.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2019, gives committee of creditors of the loan defaulting company explicit authority over the distribution of proceeds in the resolution process and fixes a firm timeline of 330 days for resolving cases referred to the IBC.

Among others, the approved resolution plan would be binding on central and state governments as well as various statutory authorities.

On July 22, the top court had put on hold the sale of Essar Steel to ArcelorMittal as it agreed to hear the appeal filed by lenders against the NCLAT order, saying it would like to settle the issue “once and for all”.

The top court had said that the monitoring committee will continue to manage the company. “Once the Committee of Creditors in their concerned wisdom had decided on division of assets, there should have been no re-distribution, like you are an Interim Resolution Professional,” the bench had observed at the outset. “We would settle this issue once and for all.”

Essar Steel was auctioned under the IBC to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors.

In its July 4 order, the NCLAT had said that financial creditors will get 60.7 percent of their admitted claims of Rs 49,473 crore, almost same as operational creditors.

The operational creditors with admitted claim amount of less than Rs 1 crore would get 100 percent, while above Rs 1 crore would get 60.26 percent and workmen and employees would get 100 percent.

NCLAT had said that the committee of creditors will have no role in the distribution of Rs 42,000 crore and allowed claims of the operational creditors such as Dakshin Gujarat Vij Co. Ltd., Gujarat Energy Transmission Corp. Ltd., Bharat Petroleum Corporation Ltd., Indian Oil Corporation Ltd., GAIL (India) Ltd., Oil and Natural Gas Corporation Ltd., and NTPC Ltd.

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 Essar Steel under the insolvency process.

The tribunal said the apex court had settled the issue of eligibility of ArcelorMittal India and could not be re-opened before the appellate authority at a stage where the “resolution plan” approval was being considered.