NCLAT asks NCLT to pass final order on Essar Steel insolvency bids on Jan 31

With insolvency process of Essar Steel appearing to be on a drag, the National Company Law Appellate Tribunal (NCLAT) Wednesday ordered the Ahmedabad-bench of company law court to give by January 31 a final decision on lenders approving ArcelorMittal's Rs 42,000 crore takeover proposal of the indebted steelmaker.

Rivalling ArcelorMittal is a last-minute offer by shareholders of Essar Steel to pay all of the Rs 54,389 crore dues of both financial and operational creditors.

The Committee of Essar Steel Creditors, however, ignored the Rs 54,389 crore offer which was made months after bids by potential takeover candidates had come in and chosen ArcelorMittal as the resolution applicant for recovering their Rs 50,800 crore of dues. This was then submitted to the National Company Law Tribunal in Ahmedabad which was overseeing the insolvency process.

To complicate things, operational creditors filed petitions in NCLT wanting ArcelorMittal to pay all of their dues like what Essar Steel shareholders had promised or its bid be rejected. Essar Steel shareholders too moved NCLT for consideration of their offer which they said was done under recently introduced Section 12A of the Insolvency and Bankruptcy Code (IBC) that allows for withdrawal of companies from the process if lenders agreed.

Passing an order over the plea of ArcelorMittal and supported by Committee of Creditors (CoC) of the debt-ridden company, NCLAT Wednesday said that if the Ahmedabad bench of NCLT does not pass any order by January 31, then it would call the matter and pass an appropriate order on the next date of hearing.

"We allow designated authority (NCLT) to pass appropriate orders by next date, failing which this appellate tribunal will decide," said a two-member NCLAT bench headed by Justice S J Mukhopadhaya.

The appellate tribunal has directed to list the matter on February 4 for next hearing.

Interestingly, State Bank of India (SBI) - the biggest of lenders to Essar Steel - has put its entire Rs 15,400 crore exposure on the block. It set January 30 as the deadline for accepting bids to buy the loan for more than Rs 9,600 crore. The buyer of such loan could then collect Rs 11,300 crore from ArcelorMittal in the future.

The move was seen as jettison the insolvency process as theoretically speaking Essar Steel shareholders or Russia's VTB Group, which has been backing them for the takeover of the company after paying of dues, could buy that loan and become the strongest voice on the all-important Committee of Creditors (CoC).

Industry sources said this buyer could potentially back Essar Steel shareholder's last-ditch offer to outwit ArcelorMittal. There was a strong possibility of other creditors such as Standard Chartered Plc to sail with that as it would get next to nothing out of ArcelorMittal's proposal.

For the record, Essar Steel said its Rs 54,389-crore offer was much superior to ArcelorMittal's rival offer and lenders should not be pressured into giving control of the company to any entity that undervalues it.

"The proposal made by Essar Steel shareholders provides for payment of a total of Rs 54,389 crore to various creditors, which exceeds the resolution plan currently approved by the creditors by more than Rs 12,000 crore," Essar Steel said in a statement.

The proposal, it said, was submitted under the recently introduced Section 12A of the Insolvency and Bankruptcy Code (IBC).

"Under the proposal made by the shareholders, all classes of creditors would receive full recovery of their claims," the statement said. "The overriding objective of the IBC is maximisation of recovery for creditors and this has been established time and again by courts at all levels. Creditors of Essar Steel, including operational creditors, should not be forced to accept a resolution plan which undervalues the company and its assets."
"The IBC was introduced for a very serious reason - to address a major problem with bad loans. If the law is not implemented correctly and the rules are flouted, as suggested by some, this sends a negative signal about the certainty of India as an investment destination," it had said. "ArcelorMittal has followed the process from the start. We fully expect the process to continue to be implemented correctly and as per the law and that statements attempting to convince otherwise not be given any credibility."