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NCLT Approves Resolution Plans For Uttam Galva Metallics, Uttam Value Steels

A consortium led by CarVal Investors emerged as the successful resolution applicant for the two Uttam Galva entities.



A coil of cold-rolled full hard steel sits at the manufacturing facility of Uttam Galva Steels Ltd., the Indian unit of ArcelorMittal, in Khopoli, Maharashtra, India (Photographer: Vivek Prakash/Bloomberg)
A coil of cold-rolled full hard steel sits at the manufacturing facility of Uttam Galva Steels Ltd., the Indian unit of ArcelorMittal, in Khopoli, Maharashtra, India (Photographer: Vivek Prakash/Bloomberg)

The National Company Law Tribunal has approved a resolution plan for Uttam Galva Metallics Ltd. and Uttam Value Steels Ltd. that was submitted by a consortium led by New-York based CarVal Investors LLP.

The resolution plan involves a mix of an upfront settlement amount and deferred and contingent payments to financial creditors worth Rs 1,567 crore and Rs 1,078 crore, respectively. The committee of creditors for the two metal and manufacturing entities had approved the plan in April last year.

The principal bench, comprising acting president BSV Prakash Kumar, also dismissed the objections raised by unsuccessful resolution applicants who said NCLT’s decision was contrary to a circular that disallowed hearing of resolution plans during the lockdown.

A lenders consortium, led by State Bank of India, had initiated insolvency proceedings against the two entities in 2017 and 2018. Lenders to Uttam Metallics had submitted claims worth Rs 4,263 crore, of which Rs 4,176 crore was admitted by the resolution professional. A total claim of Rs 3,014 crore was admitted against Uttam Value Steels.

Separately, Deutsche Bank has initiated insolvency proceedings against Uttam Galva Steels Ltd.—the group’s flagship company—after it defaulted on certain payments under a credit facility agreement. The Mumbai bench of the NCLT is currently hearing the case.

Resolution Plan Details

Uttam Metallics

  • An upfront settlement amount of Rs 350 crore and an equity infusion of Rs 60 crore and a 5 percent equity participation.
  • Deferred payment to creditors worth Rs 700 crore and contingent payments dependent on trade/mega incentive receivables and recoverable amounts from advance or investments amounting to Rs 456 crore.
  • Existing equity and preference capital will be wiped off.

Uttam Value Steels

  • An upfront settlement amount of Rs 275 crore and an equity infusion of Rs 40 crore and a 5 percent equity participation.
  • Deferred payment of Rs 500 crore and total contingent payment of Rs 260 crore.

Objections Dismissed

Jatia Group, a creditor for Uttam Value Steels, had moved the tribunal objecting the 99 percent haircut in the resolution plan against its claims of Rs 423 crore.

The resolution plan, it argued, was contingent on the NCLT’s approval of the plan for Uttam Metallics. Such conditionality is not permissible under the Insolvency and Bankruptcy Code.

The resolution plan breaches Section 31 of IBC, which requires a resolution applicant to seek prior approval of the Competition Commission of India for a resolution plan. No such approval was placed before the committee of creditors, it said. Also, the resolution plan discriminates against operational creditors by offering them a very low payout of 0.19 percent.

The bench read into the intent of the insolvency code, prevailing conditions due to the Covid-19 pandemic and the financial condition of the company and dismissed the objections.

While doing so, it observed:

  • Resolution plans submitted by the CarVal-led consortium was already approved by the committee of creditors of both entities. As such, the interlinking was approved and there was no contingency in the plans.
  • An objection regarding pendency of approval from the competition regulator cannot be raised by a stakeholder as it will not change the payment obligations in the proposed resolution plan.
  • The Supreme Court had clarified in the Essar Steel Ltd.’s case that the adjudicating authority cannot “transgress into commercial wisdom” of the creditors’ committee in approval of a resolution plan.

The NCLT also dismissed the objections raised by the group with respect to personal bank guarantees offered by resolution applicants.