Can NCLAT change CoC approved plans, Essar lenders ask Supreme Court

NCLAT's decision to equate operational, financial creditors could lead to a severe plunge in recovery rate, says CoC

Can the National Company Law Appellate Tribunal (NCLAT) interfere with commercial decisions taken by the committee of creditors (CoC) of a corporate debtor undergoing the Corporate Insolvency Resolution Process (CIRP)? Does the NCLAT or the National Company Law Tribunal (NCLT) have jurisdiction to review and change decisions taken by the lenders concerning the plan cleared by the CoC? These are some of the questions the lenders to Essar Steel India, led by State Bank of India, have raised in their plea before the Supreme Court.
 
In their plea challenging the NCLAT’s decision approving of ArcelorMittal’s bid for Essar Steel, the CoC has said that the decision of the appellate tribunal has put the entire CIRP of Essar Steel “under jeopardy” and that the judgment is “shocking, unsettling of otherwise settled principles of law recognising and protecting the rights of the secured creditors”.
 
“The judgment misconstrues and misinterprets the provisions and the scheme of the (Insolvency and Bankruptcy) Code to such an extent so as to literally re-write the statute itself and thus, suffers from fatal jurisdictional errors from basing itself on glaring factual errors,” the lenders stated in their plea.
 
On July 4, the NCLAT had, with riders, approved of ArcelorMittal’s plan for Essar Steel. In its judgment, the appellate tribunal had said that of the Rs 42,000-crore plan submitted by ArcelorMittal, the financial creditors would now get about Rs 30,030 crore, while the operational creditors would get Rs 12,000 crore. It added that both classes of creditors would get 60.7 per cent of their admitted claims.
 

A two-member Bench of the appellate tribunal, headed by Chairperson Justice S J Mukhopadhaya, had then also reprimanded the CoC for discriminating against the operational creditors and other financial creditors such as Standard Chartered Bank (StanChart). The CoC, the NCLAT had said, was not empowered to decide how the distribution was to be made between one and the other creditor.
 
Challenging this observation of the NCLAT, the lenders in their plea stated that if they did not have the power to decide on the plans submitted by the bidders, it would effectively leave them “bereft of any role and authority inter alia in respect to approval of a resolution plan”.
 
The appellate authority’s decision to equate financial creditors with operational creditors and disregarding the security interests of the former would lead to “severe plunge in recovery rate of banks and financial institutions” during the CIRP, which could lead them to “grave financial distress,” the CoC said.
 
Apart from this, the CoC has asked the top court whether the resolution plan, as approved by the lenders, can be changed by the NCLAT “unilaterally” without the consent of the CoC and the resolution applicant. The lenders have also sought to know from the top court whether they have the rights to exclusively decide on the distribution of proceeds from the resolution plan approved by them.