Only Rs 39,500 cr for distribution among Essar creditors, CoC tells NCLAT

CoC says Rs 2,500 crore kept as minimum guarantee for financial creditors during pendency of resolution process

Essar Steel India Limited's committee of creditors (CoC) on Thursday told the National Company Law Appellate Tribunal (NCLAT) that out of ArcelorMittal's bid amount of Rs 42,000 crore, only Rs 39,500 crore was meant for distribution among the various creditors of the company. The remaining Rs 2,500 crore was kept as a minimum guarantee in the form of working capital for financial creditors of the company during the pendency of the corporate insolvency resolution process.

“It is a fact that in the Supreme Court offer was made for Rs 42,000 crores. But in the final judgment, the Supreme Court only referred to the previous offer of Rs 35,000 crore. Ultimately after a lot of discussion it was raised to Rs 39,500 crore,” Senior Advocate Gopal Subramanium, appearing for CoC, told the NCLAT.

Of the Rs 39,500 crore kept aside for distribution among various creditors, the financial creditors will be given the lion’s share as their claims are higher than those of operational creditors, Subramanium told NCLAT. However, he rejected Standard Chartered Bank’s allegation that Orissa Slurry Pipeline Infrastructure Limited’s debts were also being included in the resolution plan for Essar Steel.

An amount of Rs 2,500 crore was kept aside in case the company did not make any profit during the corporate insolvency resolution process. Barring the amount kept aside, the total upfront payment of Rs 42,000 crore would not be cut, he told NCLAT.

“We wanted a guarantee that if it was a minus, at Rs 2,500 crore you must commit. If however, there is actually profit, whatever is actually profit, will be given to lenders. Whatever excess of Rs 2,500 crore is there, it would be given back to the creditors,” Subramanium said, adding that the company had a made a profit of Rs 3,498 crore.

The submissions by CoC come after Standard Chartered moved the NCLAT alleging that lenders had accepted Rs 39,500 crore from ArcelorMittal instead of the Rs 42,000 crore bid, as approved earlier. StanChart alleged that the CoC had clubbed Odisha Slurry Pipeline Limited's debt with Essar Steel's debt in the auction to recover unpaid loans, which would in effect reduce the up-front payment to be made by ArcelorMittal.

This in turn, Senior Advocate Kapil Sibal appearing for StanChart had then told NCLAT, would mean a smaller amount for the financial creditors who were not part of the core of CoC.

“They short-changed us to benefit themselves. The plan proposed Rs 42,000 crore plus working capital and not Rs 35,000 crore plus working capital, which has been accepted by the CoC,” Sibal told the NCLAT. An amount of Rs 2,500 crore, which should have been paid to Standard Chartered, has been diverted to lenders of Odisha Slurry Pipeline India Ltd, which owns the slurry pipeline, Sibal had said.

Questioning the authority of the members of CoC, who he alleged had held private and unauthorised negotiations with ArcelorMittal, Sibal said that such private deals were detrimental to the interests of stakeholders of Essar Steel. “The CoC is empowered only to accept or reject a bid. How can it negotiate on behalf of other creditors,” Sibal said. The NCLAT will continue hearing StanChart on Tuesday.

StanChart has approached the NCLAT alleging that the CoC had discriminated against it, as the bank was being offered only 1.7 per cent of its total dues from Essar Steel’s resolution plan, while other financial creditors, forming a part of the CoC, were getting over 85 per cent of their dues.

During the hearing on Thursday, while the CoC accepted that Standard Chartered was a “secured financial creditor”, it said that the justification for giving it the money it was given was that security created in favour of the bank was of a different nature. The NCLAT will continue hearing the matter on May 20.