Essar Steel Case: Standard Chartered Got An ‘Extravagant Bonanza’, Argues SBI

It seems like secured creditors are on the train and everyone else is on the platform, says Standard Chartered defending its claim

A view of the Supreme Court in New Delhi. (Photo: PTI)
A view of the Supreme Court in New Delhi. (Photo: PTI)

Day three of the Essar Steel hearing saw State Bank of India, along with IDBI Bank, battle it out with Standard Chartered Bank on whether all the financial creditors have an equal status under the Insolvency and Bankruptcy Code. So far, senior advocates Rakesh Dwivedi and Gopal Subramanium have argued on behalf of Essar Steel’s creditors’ committee

The National Company Law Appellate Tribunal failed to appreciate that Standard Chartered was different from other financial creditors, senior advocate Shyam Divan said while explaining the allocation of Rs 60.71 crore to Standard Chartered under the resolution plan against its claim of Rs 3,487 crore. Divan argued on behalf of SBI and IDBI, the biggest lenders to the project.

The security cover of Standard Chartered was only 0.7 percent of its total claim, which in fair value terms comes to around Rs 24 crore. Despite that, the committee of creditors allotted around Rs 60 crore to Standard Chartered which was much higher than the security on the credit it had extended. The Rs 2,160 crore that Standard Chartered is getting as per the NCLAT judgement is an extravagant bonanza for it, argued Divan.

Secured lender is secured only to the extent of their security. This is an established position in law.....If a lender is extending loans worth Rs 1,000 crore on a security of Rs 100 crore, then Rs 900 crore has to be treated as unsecured. This is as per the provisioning norms.
Shyam Divan, Counsel for State Bank of India and IDBI Bank

In its July 2019 verdict, the NCLAT had directed a change in distribution of funds from the winning bid of ArcelorMittal, and granted Standard Chartered parity with other financial lenders. As per the NCLAT judgment, Standard Chartered was to receive 60 percent of its claims, just like the other financial creditors.

It is evident that there is no distinction made between one or other ‘Financial Creditor’. All persons to whom a financial debt is owed by the ‘Corporate Debtor’, which debt is disbursed against the consideration for time value of money, whether they come within one or other clause of Section 5(8), all of such person form one class i.e. ‘Financial Creditor’ they cannot be sub-classified as ‘Secured’ or ‘Unsecured Financial Creditor’ for the purpose of preparation of the ‘Resolution Plan’ by the ‘Resolution Applicant’
NCLAT Judgment in Essar Steel Insolvency Case

Standard Chartered’s Case

The order of priority of the creditors is decided by law and not by secured creditors or the CoC, Standard Chartered argued in favour of its claim.

Senior Advoctae Kapil Sibal, arguing for Standard Chartered, said the Supreme Court in the Swiss Ribbons case made a distinction between financial and operational creditors. But no distinction was made between financial creditors, as was done by the CoC of Essar Steel. The actions of CoC suggest not just collusion but also a complete violation of the IBC, Sibal said.

All the other financial creditors got 92 percent of their claims plus 40 percent interest on those claims. We on the other hand received less than 2 percent of our claim in the resolution plan approved by the CoC. Nowhere does the IBC Code mention that the CoC is empowered to decide the allocation of funds....There is an inherent conflict of interest in the CoC making that decision.
Kapil Sibal, Counsel for Standard Chartered Bank

If the criteria of security of creditors only up to the value of security on their loans is to be applied, then that should apply to other creditors as well, Sibal said.

“If I scrutinise each of their security interest, litigation will never end,” said Sibal, adding that the argument of the CoC over the last two days implies that everyone else including the adjudicating authorities is a rubber stamp and the CoC rules the roost.

Sibal was in the middle of his arguments for Standard Chartered when the day ended. He will now continue on Oct. 22 when Justice Rohinton Nariman-led bench resumes the hearing.