Sterling Biotech one-time settlement offer opens doors for more promoters

Bhushan Power & Steel, Essar want banks to take their 100% dues repayment offer

With the lenders clearing the one-time settlement offer of Sterling Biotech under Section 12A of the Insolvency and Bankruptcy Code (IBC) with a 65 per cent haircut, the stage is set for a legal battle by the promoters of other firms who have filed similar applications and want similar treatment to their accounts.

As at the end of December, the lenders settled 63 cases under Section 12A, which allows a defaulter to make good on the default and retain control over the firm even after the case is admitted to the National Company Law Tribunal. According to the IBC norms, 90 per cent of the lenders should agree to the offer made by the defaulting promoter.

In Sterling’s case, the committee of creditors has decided to withdraw the bankruptcy petition against the company by accepting an offer made by the promoters, which will entail banks taking 35 per cent of their dues.

Corporate lawyers said Sterling’s settlement has opened doors for other promoters who are facing similar cases in the courts. In the case of Bhushan Power & Steel, which has defaulted to loans worth Rs 48,000 crore, its promoter Sanjay Singal offered to settle all dues but the lenders had rejected the offer. After an appeal by Singal to the National Company Law Appellate Tribunal, the appellate tribunal asked the National Company Law Tribunal to take a call on Singal offer by March end.

Singal’s offer is pitted against an offer made by JSW Steel for Bhushan Power and Steel, which had offered to pay Rs 19,500 crore as upfront cash to the lenders. The NCLT will have to take a call on JSW offer by March end, as per a NCLAT order dated March 3. “The Supreme Court has opened the window for 12A of IBC for the promoters. But the committee of creditors is to be satisfied and 90 per cent of them have to agree for the proposal. At the same time, the CoC cannot arbitrarily reject the proposal under the 12A of IBC. 

Considering that, litigations will continue for some time. Finally, the SC has to decide whether the CoC exercised discretion properly in rejecting the 12 A application,” said CEO of a large company. In the past, the courts have made it clear that the CoC and the resolution professionals are not judges and the final decision on all IBC cases rest with the courts.

The promoters of Essar Steel, who have defaulted to Rs 45,000 crore of bank loans, had also filed a petition under the 12A with the NCLT Ahmedabad for settlement. But its petition was rejected in January by the NCLT saying that it is not maintainable as the promoter Essar Steel Asia Holding’s offer does not have the locus standi to make a debt settlement plea as it did not approach as a resolution applicant unlike others.

The Ruias have decided to move the NCLAT appealing the NCLT order. The Ruias had offered to repay the entire dues of Rs 54,389 crore to the lenders. The NCLT cleared Arcelor­­Mittal’s proposal to pay Rs 42,000 crore as upfront cash to lenders. Standard Chartered Bank, one of Essar Steel’s operational creditor, has also moved NCLAT against the NCLT order today as it is not getting any funds according to the ArcelorMittal offer.