Essar Steel - Supreme Court: Fair, Equitable Treatment Does Not Mean All Creditors Are Equal, Argues Creditors’ Committee
The first day of hearing in the Supreme Court as the Essar Steel insolvency resolution case enters the final stretch.
The National Company Law Appellate Tribunal judgment holding that there should be a fair and equitable treatment of creditors does not mean that all creditors, financial and operational, should be treated equally, argued the lawyer for Essar Steel Ltd.’s Committee of Creditors as a Supreme Court bench, headed by Justice Rohinton Nariman, began hearing the long-pending insolvency case.
On the first day of hearing at the apex court, the CoC’s lawyer, Senior Advocate Gopal Subramanium, argued against the NCLAT order that held all creditors must be treated on equal footing and that dues of both financial and operational creditors will be proportionately settled.
In July 2019, the NCLAT decision, while approving the winning bid by ArcelorMittal, had stripped the financial lenders-led CoC of powers to determine settlement of claims, by ruling that the CoC has no role in distribution of claims from the resolution plan, and it can only decide on the viability and feasibility of the bid. Tasking the resolution professional with distribution of claims, the tribunal ordered an equal recovery of 60.7 percent for secured, unsecured and operational creditors of Essar Steel. For this and other reasons, the judgment was appealed in the Supreme Court and after much hearing, the insolvency matter, now pending for two years, has returned to the Supreme Court for a final decision.
Today, Subramanium argued the law made a valid distinction between operational and financial creditors and hence settlement of their claims will vary. Essar Steel’s operational creditors were being paid for their goods/services even while the insolvency resolution process was on, Subramanium pointed out. They’d been paid Rs 55,000 crore in that period, he added, whereas a moratorium had been imposed on the dues and claims of financial creditors.
Even within financial creditors, the distribution of claims will depend on the terms of the loan and underlying security, as was the case with Standard Chartered Bank, he pointed out.
On the larger issue of CoC powers, Subramanium argued the creditors’ committee has complete authority to examine, negotiate and decide all commercial aspects of a resolution plan, including distribution of claims. And, that the NCLAT was incorrect in holding it to be an adjudicatory function. He pointed to a a view taken by the NCLAT itself in cases such as the Darshak Enterprises matter, where the tribunal held that the CoC has the power to decide the percentage of claim amount payable to the creditors.
In sudden departure from the law laid down by itself, without recording any reasoning and much in derogation of principles of continuity, certainty and predictability expected of a tribunal ....... the NCLAT has completely disregarded its own earlier decision without assigning any reason or justification whatsoever.Gopal Subramanium, Senior Advocate (Counsel for Essar Steel CoC)
The Essar Steel Committee of Creditors has also challenged the 2019 amendments to the Insolvency and Bankruptcy Code, namely the new insolvency resolution process deadline of 330 days (including litigation).
Subramanium requested the court to ensure the deadline amendment does not result in the mandatory liquidation of Essar Steel, as the insolvency resolution process had already exceeded 330 days. The Ruia family-owned company was admitted to insolvency resolution in August 2017.
The bench asked the CoC for written submissions on their challenge to the IBC amendments. The hearing will continue tomorrow with Senior Advocate Rakesh Dwivedi also arguing on behalf of the creditors.