Essar Steel's debt resolution stuck again as SBI moves SC against StanChart claim
02 April 2019
In a move that could delay debt-laden Essar Steel’s debt resolution process, the State Bank of India (SBI) is moving the Supreme Court against the National Company Law Appellate Tribunal’s direction to give more cash to Standard Chartered Bank (SCB), which has made a claim of Rs3,487 crore against the company.
NCLAT has directed a fresh meeting of the committee of creditors (CoC) on Essar Steel funds distribution.
StanChart told the NCLAT last week that as per the decision of the committee of creditors, StanChart, an unsecured financial creditor, will receive only 1.7 per cent, or Rs60 crore against its claim of Rs3,487 crore.
StanChart said it should get higher a payout for its dues from Essar Steel. The next hearing on the matter at NCLAT has been adjourned to 9 April.
Unsecured lender Standard Chartered Bank, which had made the highest claim of Rs3,400 crore, has been excluded from the offer. As per the plan submitted by ArcelorMittal, the bank will receive only 1.7 per cent, or Rs60 crore, of its dues.
In the proposal cleared by the committee of creditors (CoC) last week, operational creditors agreed to set aside Rs1,000 crore more from the Rs42,000 crore debt resolution plan of ArcelorMittal. The SBI move comes days before the NCLAT is to hear the outcome of the CoC meeting on 9 April
During the NCLAT hearing, the State Bank of India had said that Standard Chartered Bank is not a secured creditor and it should not be allowed to make any additional claim from ArcelorMittal’s Rs42,000 crore offer.
In July 2 last year, Standard Chartered Bank had asked the resolution professional of Essar Steel that its claim of Rs3,487 crore, pertaining to its unsecured loan to Essar Steel Offshore Limited (ESOL), should be reclassified as secured loan on the basis of share pledge made by the promoters. It said the corporate guarantee for the loan was provided by Essar Steel for the ESOL loan.
The RP agreed to SCB’s claim to be converted into a secured one based on security of pledge of shares. But, on 31 August last year, Essar Steel’s lenders led by SBI, ICICI Bank, IDBI Bank, Edelweiss ARC, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India and Punjab National Bank objected the re-classification of Standard Chartered Bank loan from unsecured to a secured one.
The lenders expressed their objection on SCB being a financial creditor on grounds of execution of guarantee without obtaining no objection certificate (NOC) from them, based on which, the lenders said, the SCB's claim is invalid, unsustainable in law, ultra vires and far beyond Essar Steel's powers and authority.
In a reply letter dated 10 September 2018 sent on behalf of the RP, it was mentioned that the RP will suitably record the objections (as set out in the said letter dated 31 August) in the list of creditors of ESIL.
Interestingly, last week 70 per cent of the lenders agreed to set aside Rs1,000 crore more for the operational creditors of Essar Steel as against Rs200 crore earmarked earlier, as per ArcelorMittal’s debt resolution plan. This plan, however, excluded Standard Chartered Bank. Essar Steel’s operational creditors have made a claim of Rs4,700 crore against the company. The NCLT’s Ahmedabad bench had earlier ordered that lenders must share 15 per cent of ArcelorMittal’s upfront cash with operational creditors while the rest can be distributed to the lenders.