Ahmedabad: On Tuesday, January 29, the National Company Law Tribunal (NCLT) dismissed the proposed debt settlement made by the shareholders of Essar Steel. The bid was rejected by the Tribunal for being in violation of Section 12A of the Insolvency and Bankruptcy Code.
Previously this month, the NCALT had instructed the Ahmedabad bench to expediate the proceedings and dispose of the matter by January 31.
The Ahmedabad bench of the Tribunal headed by Manorama Kumari and Harihar Prakash Chaturvedi observed that the grounds of the proposed settlement are inadmissible as the sole method of initiating a proposal under section 12A, as the bid by Essar Steel Asia Holding is Rs. 54,398 Crores, making it much higher than the winning bid of Rs. 42,000 Crores by Arcelor Mittal. Moreover, it was observed that bid by the Essar Group was not in sync with the provisions of the Code.
However, the global investor’s group is likely to challenge the order of the Tribunal based on a Supreme Court order which upheld the amendment allowing creditors out-of-court settlements with an immediate payment of dues than the creditors being subjected to insolvency proceedings.
In case, the defaulter group does not pursue the rejected order by the Tribunal. It will amount to the first major victory for the world’s largest steelmaker, Arcelor Mittal. Previously, the alloy major had collectively through Uttam-Galwa and KS Petron made attempts against the Essar Group, however, in vain as they did not have any substantial ground until the verdict of the Tribunal.
The bench observed no illegality in the decision by the Committee of creditors accepting the bid lower than the bid by the Ruia’s.
Arcelor Mittal being highly in favour of the verdict stated that it is “a positive development” for both parties involved as the ruling contributes to the protection of the integrity and legitimacy of the IBC.
The Essar Group stating applicability of Section 12A in retrospective, claimed that their bid is a more compelling proposal available to repay all classes of creditors and fulfil the objective of the Code to value maximization. The Group shall take further steps after going through the complete order.
The original promoters owed over Rs. 49,000 crores to lenders led by the SBI. From Wednesday, January 30, the bench shall proceed with the resolution plan application filed by the resolution professional, wherein a proposal of Rs.54,389 crores was submitted to repay the committee of creditors. As per the resolution plan submitted by Arcelor Mittal, it would pay Rs. 42,000 crores to creditors, whereas, Rs. 8000 crores shall be kept for capital.