The Essar Steel’s debt resolution battle has reached the Supreme Court (SC) with State Bank of India (SBI) moving the apex court against the National Company Law Appellate Tribunal (NCLAT) advice to give more cash to Standard Chartered (StanChart), which has made a claim of Rs 3,487 crore against the company.
The SBI action came just days before the NCLAT was to hear the outcome of the committee of creditors (CoC) meeting on April 9. During the NCLAT hearing, SBI had said Standard Chartered was not a secured creditor and should not be allowed to make any additional claim from ArcelorMittal’s Rs 42,000-crore offer.
Standard Chartered had informed the tribunal that it was only getting 1.7 per cent of its dues or Rs 60 crore, while other lenders are getting 92 per cent, based on ArcelorMittal’s payments plan. But SBI had opposed giving equal treatment to Standard Chartered, saying the bank was not a secured creditor as its loan was not directly to Essar Steel but to a promoter entity.
In July 2, Standard Chartered had asked the resolution professional (RP) of Essar Steel that its claim of Rs 3,487 crore pertaining to its loan to Essar Steel Offshore Limited (ESOL) should be reclassified from unsecured to a secured one on the basis of share pledge made by the promoters. It said the corporate guarantee for the loan was provided by Essar Steel for the ESOL loan.
The RP agreed to Standard Chartered’s claim to be converted into a secured one based on security of pledge of shares.
But on 31 August, Essar Steel’s lenders, led by SBI, ICICI Bank, IDBI Bank, Edelweiss ARC, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India and Punjab National Bank, objected the re-classification of Standard Chartered loan from unsecured to a secured lender.
The lenders expressed their objection on Standard Chartered being a financial creditor on grounds of execution of guarantee without obtaining no objection certificate (NOC) from them, based on which, the lenders said the Standard Chartered’s claim is invalid, unsustainable in law, ultra vires and far beyond Essar Steel’s powers and authority.
In this regard, a reply letter dated September 10, 2018, was sent on behalf of the RP mentioning that the RP would suitably record the objections (as set out in the said letter dated August 31) in the list of creditors of ESIL.
Interestingly, last week 70 per cent of the lenders agreed to set aside Rs 1,000 crore more for the operational creditors of Essar Steel as against Rs 200 crore earmarked earlier, according to ArcelorMittal’s debt resolution plan. This plan, however, excluded Standard Chartered.
Essar Steel’s operational creditors have made a claim of Rs 4,700 crore against the company. The NCLT’s Ahmedabad Bench had earlier ordered that lenders must share 15 per cent of ArcelorMittal’s upfront cash with operational creditors, while the rest could be distributed to the lenders.
Essar Steel was sent for debt resolution in June 2017 after the company failed to repay its debt worth Rs 54,000 crore to Indian banks.