The Supreme Court quashed a National Company Law Appellate Tribunal (NCLAT) order paving the way for ArcelorMittal's Rs 42,000-crore acquisition of the debt-laden Essar Steel. The acquisition of the steel company would now take place as per the resolution plan of ArcelorMittal.
A bench headed by Justice RF Nariman quashed the NCLAT order that had given financial creditors equal status with operational creditors in the distribution of ArcelorMittal's bid amount. The Supreme Court bench clarified that financial creditors enjoy primacy and the adjudicating authority cannot interfere with the decision approved by the committee of creditors. The committee of creditors consists of banks.
The court stated that the NCLAT cannot interfere with the committee of creditors' commercial decisions. It added that the tribunal can send the plan back to the committee in case it finds that legal parameters are not met but it cannot tinker with the plan.
In its order, the NCLAT had stated that the funds from the winning bid must be distributed equally between operational and financial creditors. The issue snowballed to a legal tussle between financial institutions and the company's operational creditors who said that ArcelorMittal's winning bid was not enough to meet their dues.
The Supreme Court also relaxed the timeline of 330 days to find a resolution plan as prescribed under the Insolvency and Bankruptcy Code.
Essar Steel owes around Rs 49,000 crore to a host of banks including State Bank of India (highest exposure of over Rs 15,000 crore), ICICI Bank, Syndicate Bank and IDBI Bank.