The National Company Law Appellate Tribunal (NCLAT) on Thursday approved the resolution plan submitted by Lakshmi Mittal-led ArcelorMittal for Essar Steel India, but with modifications. 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, the NCLAT said, holding both the 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 also reprimanded the committee of creditors (CoC) for discriminating against the operational creditors and other financial creditors such as Standard Chartered Bank (StanChart). The CoC, the NCLAT said, had not been empowered to decide the manner in which the distribution was to be made between one and the other creditor.
Essar Steel’s financial creditors should not have distributed the amount among themselves by keeping the “maximum amount in favour of one or other financial creditors and minimum or NIL amount in favour of some other financial creditors or the operational creditors,” the NCLAT said.
“We hold the CoC has no role to play in distributing the amount among creditors, including the financial creditors or the operational creditors. The CoC is only required to notice the viability, feasibility of the resolution plan,” the two-member Bench said. The observations by the NCLAT came on a plea moved by StanChart and operational creditors.
While StanChart alleged that the lenders to Essar Steel had discriminated against it by approving 91 per cent of their claims, which relegating the former’s claims to nearly 1.7 per cent, many of the operational creditors alleged though their claim had been admitted by the resolution professional (RP), no amounted had been allotted to them in the plan submitted by ArcelorMittal.
Other than rapping the CoC for being discriminatory while allocating the resources and holding that they could not have done so, the NCLAT said formation of a sub-committee or core committee to renegotiate the terms of the plan with ArcelorMittal was also unjust in law. The core-committee, the NCLAT said, is unknown and against the provisions of the Insolvency and Bankruptcy Code (IBC).
The negotiations by the sub-committee resulted in infirmity because of which ArcelorMittal submitted a revised plan and delegated its power of distribution to the CoC which is in violation of the IBC, the NCLAT said. It is for this fact that the plan submitted by ArcelorMittal should be rejected, the appellate tribunal observed.
“The suggestion of resolution applicant (ArcelorMittal) to distribute the financial package offered by it only to the secured financial creditors, denying the right of operational creditors and other stakeholders, is also against the provisions of Section 30 (2) and regulation 38 (1a), and thereby cannot be upheld,” the two-member Bench observed.
The appellate tribunal, however, did not reject the plan and instead asked ArcelorMittal to distribute the amounts to be made to operational and financial creditors as well as other stakeholders and make sure that the same reflects in its resolution plan. The Bench also said the CoC should take help of a reputed chartered accountant firm or a legal firm for calculating the exact amount to be distributed among each of the operational and financial creditors and other claimants.
Other than the Rs 42,000 crore to be distributed, the profit of Rs 3,495 crore made by the company during the corporate insolvency resolution process will also be distributed among the various groups of operation and financial creditors and other stakeholders on a pro-rata basis, the NCLAT said.
In its judgment on Thursday, the NCLAT also rejected all the contentions advanced by Prashant Ruia and Essar Steel Asia Holdings against ineligibility of ArcelorMittal’s plan under provisions of IBC.
An Essar spokesperson, however, said new facts regarding ineligibility under Section 29A, which emerged only after the previous judgment of the Supreme Court, had not been given due consideration by the NCLAT. “We are awaiting the detailed order and will decide our course of action thereafter,” a spokesperson of Essar Steel said.