Mumbai: The Supreme Court on Friday paved the way for steelmaker ArcelorMittal SA to takeover bankrupt Essar Steel, setting aside the National Company Law Appellate Tribunal’s (NCLAT) July 4 ruling that had provided for equal distribution of proceeds between financial and operational creditors in the distribution of ArcelorMittal’s bid amount.
Lifting the stay on the acquisition process, the apex court approved ArcelorMittal’s Rs 42,000 crore bid for Essar Steel and said that the operational creditors cannot be treated on par with financial creditors of a bankrupt company. The ruling provided relief to lenders and would have far-reaching ramifications for India’s insolvency code.
Now, the takeover would take place according to the October 23, 2018, resolution plan of Arcelor-Mittal. The judgment by a bench headed by Justice R F Nariman also pronounced that there is no doubt that the ultimate discretion on distribution of proceeds is with the committee of creditors (CoC).
In addition, the apex court also relaxed the timeline of 330 days to find a resolution plan as prescribed under the Inso-lvency and Bankruptcy Code (IBC).
Homi P. Ranina, Senior Lawyer, Supreme Court of India, told Financial Chronicle, “The Supreme Court has ruled that the decision of the CoC is final and cannot be challenged. The CoC is supposed to work out the facts and details with due diligence and these would be final. This is a very important judgement of the Supreme Court. Promoters of insolvent companies drag the resolution process, as a result the insolvency proceedings were getting prolonged. But, now matters will be resolved much earlier. The judgement will serve as a benchmark for all cases.”
Rajnish Kumar, Chairman, State Bank of India, said, “The Hon’ble Supreme Court of India, in a landmark judgement has held that the secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid. It has been held that the CoC can distribute amongst the secured financial creditors as per their commercial wisdom as CoC is not restricted from classifying creditors as financial, operational, secured or unsecured.”
“This much-awaited judgement also settles to rest numerous points of law under the Insolvency and Bankruptcy Code which were tested in various courts. This should significantly reduce the scope for long drawn litigations under IBC and would eventually lead to faster resolutions of stressed assets,” added Kumar.
The acquisition of Essar Steel will make Arcelor the fourth biggest producer in India.
