An employee cuts a sample from a roll of coiled steel. (Photographer: Chris Ratcliffe/Bloomberg

NCLAT Refuses To Stay ArcelorMittal’s Takeover Of Essar Steel

The appellate tribunal refused to stay the National Company Law Tribunal’s order approving ArcelorMittal’s bid to take over insolvent Essar Steel Ltd.

The two-judge bench of the National Company Law Appellate Tribunal said the ArcelorMittal resolution plan will be implemented subject to the final orders of the appellate tribunal.

The global steelmaker will pay Rs 42,000 crore against financial creditors’ claims of more than Rs 49,000 crore.

This NCLAT decision helps ArcelorMittal clear the penultimate legal stage in the pursuit of Essar Steel. In October 2018 its resolution plan was approved by the company’s committee of creditors. The final stage would be a favourable decision by the Supreme Court, but no appeal has yet been filed there.

The Luxembourg-based company’s takeover of the steel asset has been delayed by multiple cases in the NCLT and NCLAT. The Ruias, erstwhile promoters of Essar Steel, are rivalling the global steel major’s offer with their own settlement offer of Rs 54,389 crore. Meanwhile, operational creditors and one financial creditor—Standard Chartered Bank—have opposed the ArcelorMittal resolution plan on grounds of unfair distribution among creditors.

The NCLAT in the last hearing had suggested the committee of creditors consider giving operational creditors 10 percent of the total proceeds to settle claims. It also suggested the creditors convene a meeting and discuss the suggestions.

The committee of creditors, however, informed the bench, comprising Retired Justice SJ Mukhopadhyay and Retired Justice Bansi Lal Bhat, that it “doesn’t agree with the suggestions”.

The appellate tribunal will next hear appeals in the case on March 27. “It is made clear that in these appeals that we are mainly considering the question of distribution between the ‘Financial Creditor’ and the ‘Operational Creditors’ and have not stayed the resolution plan,” the NCLAT order said.

The bench also laid down the broad areas it will consider during the appeals:

  • Whether Standard Chartered Bank in whose favour guarantee was given by Essar Steel India Ltd. can claim any amount payable as debt without invoking the guarantee as on the date of admission
  • Whether operational creditors can be classified on the ground of related and unrelated parties
  • Whether the resolution plan balances all stakeholders or is discriminatory
If discriminatory, this Appellate Tribunal may modify the plan after hearing the parties, without interfering with the viability and feasibility of the resolution plan, and the total upfront payment, as suggested by the resolution applicant.
NCLAT Order (March 18, 2019)

The appellate tribunal also ordered the Essar Steel resolution professional “to keep the company as going concern and to act in terms of the resolution plan for implementation of resolution plan, which shall be subject to the decision of these appeals”.

Also read: Essar Steel: Can The Creditors’ Committee Ignore Tribunals’ ‘Suggestion’ Of Equitable Allocation? 

Essar Steel was one of the 12 large corporate accounts shortlisted for insolvency proceedings by the Reserve Bank of India in June 2017. State Bank of India and Standard Chartered Bank filed insolvency proceedings against the company at the Ahmedabad bench of the NCLT.

But repeated litigation by the promoter family, operational creditors and some financial creditors led to a considerable delay in the resolution process. The case has lingered for over 580 days compared with the 270-day resolution period prescribed in the Insolvency and Bankruptcy Code.

Also read: IBC: How Much Essar Steel’s Lenders Have Lost Since The Bankruptcy Filing

Located in western India, Essar Steel is a fully integrated steel manufacturer with a current capacity of 10 million tonnes per annum (MTPA). It is amongst the larger steel capacities in India and the only one of its kind on the block.