Essar Hearing Day 5: Operational Creditors Make Their Case As Hearing Nears Conclusion

Operational creditors made their case for parity with financial creditors and challenged amendments introduced in the Insolvency and Bankruptcy Code in August on the fifth day of hearing in the Essar Steel insolvency case.

The main challenge mounted on the amendments relates to a change in Section 30(2) of the IBC Code. After the amendment, while distributing the claims of creditors in a resolution plan, the interim resolution professional will have to ensure the share of operational creditors isn’t less than what they would have received during liquidation of corporate debtors as per provisions of Section 53 of the IBC Code.

Senior Advocate Ranjit Kumar, while arguing for Ideal Movers Pvt. Ltd., an operational creditor of Essar Steel, said the distribution mechanism described in Section 53 applies only at the liquidation stage and making it applicable during distribution of claims in a resolution plan will defeat the purpose of the IBC Code which is to “balance the interests of all stakeholders”. There is a very distinct separation between two stages of resolution and liquidation, Kumar said.

The operational creditors said any discrimination between creditors during insolvency, when the company is functioning as a going concern, violates Article 14 of the Indian Constitution that guarantees Right to Equality before law. “The IBC Code intends to grant parity to operational creditors at the resolution stage because of the role operational creditors play by ensuring the company continues to function as a going concern even when insolvency proceedings are ongoing,” Kumar said, adding that because the code emphasises on revival of the company as a going concern, priorities which apply at the stage of liquidation will have no relevance.

Kumar also said that if operational creditors aren’t paid anything, as was part of an earlier resolution plan considered by the creditor’s committee, it would lead to more companies heading for bankruptcy—contrary to the code’s objectives.

The operational creditors are also challenging the 330-day limit being introduced in insolvency proceedings which includes time consumed during litigation. On failure of the resolution process within 330 days, the amendment mandates compulsory liquidation of the company undergoing insolvency proceedings.

The case of the operational creditors on this amendment is on the ground that the law doesn’t permit asking Supreme Court to decide cases within a timeline as doing so would be contrary to the principle of separation of powers and judicial independence.

Such an amendment will also burden the tribunals hearing these cases, resulting in genuine disputes not getting addressed and denying a genuine affected person right to judicial redressal, Ideal Movers argued.

Tomorrow may be the last day of the hearing before the court reserves its judgment in the case, the bench headed by Justice Rohinton Nariman which is hearing the case, indicated. Senior Advocate Harish Salve will make his arguments for the winning bidder Arcelor Mittal India, followed by the central government’s counsel, Additional Solicitor General Madhavi Divan.

Follow our daily coverage of Essar Steel hearings in the Supreme Court

Essar Steel’s Insolvency: Final Lap?

Day 1: Fair, Equitable Treatment Does Not Mean All Creditors Are Equal, Argues Creditors’ Committee

Day 2: Creditors’ Committee Says Insolvency Code Mandates Primacy Of Financial Creditors

Day 3: Standard Chartered Got An ‘Extravagant Bonanza’, Argues SBI

Day 4: Creditors’ Committee Treated Us Worse Than Operational Creditors, Says Standard Chartered