NCLAT Dismisses Appeal Against Carval’s Resolution Plan For Uttam Value Steels
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)

NCLAT Dismisses Appeal Against Carval’s Resolution Plan For Uttam Value Steels

The National Company Law Appellate Tribunal dismissed an appeal challenging the approval for a insolvency resolution plan for Uttam Value Steels Ltd.

New York-based Carval Investors LLP's plan was approved by the principal bench of the dedicated insolvency tribunal in April. But more than four operational creditors of the steelmaker mounted a legal challenge, on various grounds, including that the creditors’ committee failed to obtain a prior nod from the Competition Commission of India before approving Carval’s bid.

Relying on previous rulings of the Supreme Court, a three-member bench of the appellate tribunal observed that the requirement for a prior approval from CCI is only “directory”, according to its order. The NCLT was conscious that the committee of creditors obtained the permission only after approving the resolution plan, the appellate tribunal said, dismissing the plea.

The Carval-led consortium’s interconnected resolution plans for Uttam Value Steels Ltd., and Uttam Galva Metallics Ltd. were approved by the CoC a year ago. It involves a mix of an upfront settlement amount, deferred as well as contingent payments to creditors aggregating Rs 1,078 crore and Rs 1,567 crore, respectively, for the two entities.

Appeal Lacks Merit, Says NCLAT

The steelmaker’s operational creditors challenged the resolution plan arguing that:

  • The consortium’s resolution plan breached the Insolvency and Bankruptcy Code as the CoC failed to obtain a prior approval from the competition regulator, which is mandatory.
  • Carval is ineligible to present a resolution plan as it lacked a technical expert to run the steelmaker’s plants after they take over. An industry expert, who was initially proposed to run the plants, resigned before the approval of the plan.
  • While the resolution applicant initially proposed submission of performance bank guarantees worth Rs 250 crore against the promised “upfront payments”, the financial creditors unilaterally diluted their value to Rs 50 crore while approving the resolution plan. This dilution may cause loss to all creditors if a need arises to invoke the guarantees.

Counsel representing the creditors’ committee, resolution professional and Carval argued the requirement for CCI’s prior approval is only directory in nature. The dilution in performance guarantees was necessitated due to economic slump caused by Covid-19. And lastly, the experts set to take over the steel plants after the implementation of the plan had adequate industry experience.

Accepting Carval’s arguments, the NCLAT observed that the dedicated insolvency tribunal had already examined the dilution in value of the guarantees while approving the plan. It also issued appropriate directions to the competition regulator, it said. And so, according to the order, the appeals filed by operational creditor lacked merit.

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