SC sets aside NCLAT order, paves way for Arcelor to acquire Essar Steel

Apex court relaxes 330-day timeline for resolving stressed assets by diluting its mandatory nature

The Supreme Court on Friday brought down the curtains on an epic battle for debt-laden Essar Steel, paving the entry of the world’s largest steel maker, ArcelorMittal, into the second-biggest steel market, India.

In a ruling that would have a far-reaching impact on cases under the Insolvency and Bankruptcy Code (IBC), the apex court has set aside the National Company Law Appellate Tribunal (NCLAT) order that put a different class of creditors — financial vis-a-vis operational creditors as also secured and unsecured financial creditors — on a par.

The apex court has relaxed the revised 330-day timeline for resolving stressed assets by diluting its mandatory nature and leaving a window open for the adjudicating authority/appellate tribunal to extend the time under certain circumstances.

The court has allowed ArcelorMittal to pay and distribute the Rs 42,000-crore bid amount in line with the resolution plan dated October 23 this year, amended and accepted by the committee of creditors (CoC) on March 27, also this year. 

Lenders had amended the plan in March to pay an additional Rs 1,000 crore to operational creditors who had exposures above Rs 1 crore.

An ArcelorMittal spokesperson said: “We are very pleased with the judgment that our resolution plan has been approved. We look forward to the closing of the acquisition soon.”

The acquisition will make ArcelorMittal the fourth-largest steel player in the domestic market.

Sources indicated there was no timeline for paying financial creditors but it was expected to be completed in two weeks once paperwork and agreements were in place.

Resolution professional Satish Kumar Gupta said the judgment brought finality to the approval of the resolution plan of ArcelorMittal for Essar Steel, the largest account under the IBC, and opened the door for its implementation, which would result in inflows of more than Rs 42,000 crore to creditors.

Essar Steel was one of the 12 accounts mandated by the Reserve Bank of India (RBI) for resolution under the IBC. Essar owes financial creditors around Rs 49,000 crore, whose realisation makes it among the best resolutions on the RBI’s first list of non-performing assets. The apex court order also appeared to bring closure to a battle for the company between the Ruias and ArcelorMittal, stretching for more than a year.

An Essar spokesperson said: “We wish ArcelorMittal and Nippon Steel the very best on their entry into the Indian market. They are acquiring a world-class facility in a market that has a long runway for growth.”

Gupta said challenges faced during the CIRP (corporate insolvency resolution process) included managing stakeholders for maximisation value, improving operations, and litigation in different forums, including by resolution applicants, under Section 29A of the IBC.

Section 29A was introduced to prevent defaulting promoters from bidding without paying overdues.

The promoter group had made attempts at regaining control of Essar Steel during the course of the past year. A settlement offer of around Rs 54,000 crore was made but rejected by the National Company Law Tribunal (NCLT).

Sapan Gupta, partner and national head of banking and finance, Shardul Amarchand Mangaldas and Co, which represented the CoC, said the order had been delivered by a three-judge Bench and was binding on all stakeholders, including the erstwhile promoters. The order has also settled several contentious issues around the IBC.

Sapan Gupta said the Supreme Court had accepted the distribution of proceeds as decided by the CoC, thereby establishing the primacy of financial creditors. “It will now resolve hundreds of IBC cases that are pending in the NCLT and NCLAT,” he said.

The NCLAT had proposed an equitable distribution of the bid amount, which meant sacrificing a large portion — from 91.99 per cent to 60.7 per cent of Rs 42,000 crore — in one of the prized assets under the IBC by the secured lenders.

The NCLAT had said since it (Essar) was not a distribution of assets from the proceeds of sales of liquidation, the resolution applicant could not take advantage of Section 53 to determine the manner in which distribution of the proposed upfront payment was to be made.

Battle for Essar Steel

Aug 2, 2017: Essar Steel admitted to NCLT 

Feb 12, 2018: ArcelorMittal, Numetal submit bids for the debt-laden firm 

Sep 7, 2018: NCLAT rules Numetal's second bid valid, directs ArcelorMittal to clear dues on account of defaulting firms by Sept 11

Oct 4, 2018: SC grants Arcelor and Numetal time to clear dues for NPAs to be eligible to bid

Oct 25, 2018: Ruias offer to repay Rs 54,389 crore Essar debt; ArcelorMittal declared successful applicant by CoC

Mar 8, 2019: NCLT clears ArcelorMittal plan

Jul 4, 2019: NCLAT approves Arcelor-Mittal bid with modifications in distribution of proceeds