The Supreme Court on Monday ordered that status quo be maintained for now on the proposed sale of ailing Essar SteelNSE 0.00 % to Arcelor-Mittal till the court examined objections by the committee of creditors (CoC), lenders and Arcelor to a National Company Law Appellate Tribunal (NCLAT) order directing that financial creditors and operational creditors be treated on a par in the process of settling claims.
The top court said that it would examine the issue at length and take a decision after two weeks on receiving formal legal views of all involved parties. Any order in this case is likely to impact similar resolution schemes.
The NCLAT’s July 5 order, while upholding ArcelorMittal’s bid, had created much consternation among the lenders — which form the committee of creditors — by calling for a redistribution of claims in opposition to the proposal cleared by CoC. The banks had dubbed the move as a disincentive to lenders and investors. Financial creditors are those which provide long-term capital by way of loans whereas operational creditors are usually the suppliers of raw materials etc.
While the former are mostly secured creditors, operational creditors are not — the singular objection by financial creditors to be treated on a par with operational creditors.
The NCLAT had modified the CoC orders to allow financial creditors to settle for 60.7% of their claims. Operational creditors were also allowed to claim a similar percentage – a change from the COC order which had directed that financial creditors be allowed to get 92.5% of their claims.
This, the banks and the CoC, had argued was against the IBC scheme which does not envisage such a parity between the two categories. Operational creditors are expected to be paid only after all secured creditors have been paid off.
Reacting prima facie to their pleas, Justice RF Nariman said: “Once the commercial wisdom of the committee of creditors is in place, the tribunal cannot act as a resolution professional and distribute funds.” He said that he would hear all the appeals and cross appeals against the NCLAT order soon.
ArcelorMittal has challenged the part of the NCLAT order that asks it to share the profits generated from the resolution process with financial and operational creditors on a pro-rata basis. The Essar Steel’s Gujarat Steel plant has been ailing since 2017.
ArcelorMittal has since won the right to bid for it and has bid over Rs 42,000 crore for it. This will have to be split between the financial creditors who are owed over Rs 30,030 crore and the operational creditors who are owed Rs 11,969 crore.
ArcelorMittal has garnered Rs 3,495 crore as profits from the resolution process so far. That, according to the order of NCLAT chairman and former Supreme Court judge SJ Mukhopadhaya, will also have to be shared pro rata with financial and operational