SC gives most of ArcelorMittal's Rs42,000-cr offer to Essar Steel’s financial creditors

While ArcelorMittal’s bid to acquire Essar Steel was cleared by the company law tribunal, the tribunal had ordered that the 42,000 crores, offered by ArcelorMittal, be distributed equally among various creditors.

A bench headed by Justice RF Nariman quashed the NCLAT order which had given financial creditors equal status with operational creditors in the distribution of ArcelorMittal’s bid amount.

The apex court also relaxed the timeline of 330 days to find a resolution plan as prescribed under the Insolvency and Bankruptcy Code.

The bench clarified that financial creditors enjoy primacy and the adjudicating authority cannot interfere with the decision approved by the committee of creditors.

The acquisition of Essar Steel will make Arcelor the fourth-biggest producer in the country.

The world’s largest steelmaker, ArcelorMittal, and its partner Nippon Steel Corp had last year offered to pay Rs42,000 crore in cash to creditors and pump another Rs8,000 crore in the steel plant.

The case was admitted to NCLT in August 2017 for insolvency proceedings after it was identified by the Reserve Bank of India in its first list of 12 big loan defaulters.

The supremacy of financial creditors has been restored. NCLT’s formula of equal distribution amongst the financial and operational creditors– which violates the commercially accepted norms of lending- now stands overruled with this ruling.

Banks are set to recover almost 92 per cent of their claims against Essar Steel, amounting to about Rs42,000 crore—the single biggest recovery under IBC for banks so far.

The operational creditors are set to get Rs196 crore proposed by Arcelor plus another Rs1,000 crore later allowed by the creditors' committee, taking the total repayment to Rs1,196 crore.

The apex court also made it clear that NCLT and NCLAT cannot interfere with the commercial decision of banks, it is simply not in their jurisdiction. This has been a key ask of banks that have often had to redraw approved resolution plans because of judicial intervention.

SBI is the biggest gainer with the largest exposure to Essar Steel. It stands to recover over Rs12,000 crore, followed by IDBI Bank, Canara Bank, PNB, ICICI Bank, Union Bank, and others.