Essar Steel insolvency case lands in legal ambiguity; NCLT to hear

Hurdles in the Essar Steel (ESIL) insolvency case continue to pile up as the National Company Law Tribunal (NCLT) in Ahmedabad has listed the case for hearing on Wednesday. The NCLT in Ahmedabad will also hear a batch of petitions by ESIL’s Operational Creditors (OCs) against the decision by ESIL’s Committee of Creditors (CoC) to award the insolvent company to ArcelorMittal (AM). SCB, in its plea, has alleged that a ‘core-committee/sub-committee’ (CC/SC), comprising of four member banks from the CoC, held ‘illegal’ backdoor meetings prior to approving the resolution plan put forward by AM. A spokesperson for AM said, that they are “confident that the process will be implemented correctly and according to the law.” At the onset the fact of CC/SC’s being formed is not an extraordinary event as it is routine practice for bankers to appoint a core team to carry out day-to-day operational and administrative tasks on behalf of the entire CoC. SCB had requested to be a part of the CC/SC in May, but this request was not attended to despite the bank being the third-largest FC of ESIL and has a 7.5 per cent weightage in the CoC’ voting rights. IBC experts say that there are no rules or regulations permitting such committees under the CoC setup. The NCLT(s) has set precedence to say it is an accepted practice, in order to finish the Corporate Insolvency Resolution Process (CIRP) in the prescribed timeline (180+90 days to complete the CIRP). The ESIL CC/SC was also tasked to handle litigation issues concerning the applicability of Section 29A of the Insolvency and Bankruptcy Code (IBC) for the two potential bidders; AM and Numetal.

According to the petition, the CC/SC and Committee of Lenders (CoL) misused machinery the machine of the Code to negotiate exclusively with AM through an illegally constituted CC/SC and have misused their voting rights to create an artificial distinction among secured FCs to create an inequitable distribution pattern, states SCB’s plea. A senior lawyer said that the allegation that the CC/SC did not have the mandate is wrong, as the CoC [in the ESIL case] gave permission to the four banks to “negotiate” with the bidders on their behalf. “The CoC voted for the committee to represent them in the negotiations on October 18 and it got over 90 per cent of the members in favour. As far as I know, SCB decided to reject the proposal,” the senior lawyer said. According to the plea, SCB says the CC/SC “recommended” that they receive only Rs 607 million as against admitted claims of Rs 34.87 billion, which is only 1.47 per cent of the total admitted claims filed by the foreign bank. The principal outstanding stands to SCB at Rs 26.5 billion. The question for the NCLT is whether SCB has grounds to contest the distribution of the offer and their dues from the plan submitted by AM, while the NCLT may question ‘illegal’ meetings through an explanation from the lead bankers, RP and legal advisors.

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