Letter to BS: NCLT decision a relief for operational creditors of Essar

The likelihood of National Company Law Tribunal rejecting or changing ArcelorMittal’s resolution plan for Essar Steel comes as a welcome relief for the operational creditors. Their grievance about playing second fiddle to the financial creditors is well justified. For instance, the mere existence of a dispute precludes them from applying for debt resolution. Recent judgments have held that even routine correspondence such as complaints on quality are valid disputes. The dispute need not be in the form of a civil suit or arbitration proceeding. The domination of lenders in the committee of creditors was bound to result in situations such as the present one where StanChart is being offered just 1.7 per cent of its dues. 

The amendment to Rule 38 goes a long way in bringing operational creditors on parity with lenders. It is now suggested and hoped that the government goes a step further and accords higher priority to small and medium-sized enterprises (SME) suppliers vis-a-vis other operational creditors. SMEs constitute the backbone of the economy. Non-payments and delays have resulted in many of them winding up. Such an initiative will go a long way in achieving the governments’ plans to boost the manufacturing sector.

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