CITATION – (2020) 8 SCC 531
The Essar Steel Case is a landmark judgment in the arena of Insolvency & Bankruptcy Law, which decided the supremacy of the financial creditors in the Committee of Creditors in cases of distribution of claims. It is one of the oldest cases going under the IBC process which lasted for approximately 900 days. The Supreme Court set aside the NCLAT ruling and uphold the decision of the Committee of Creditors on how the funds from the ₹42,000-crore offer by ArcelorMittal would be distributed among the creditors. The law related to Insolvency and Bankruptcy is largely settled in this major case.
ArcelorMittal India Private Limited and Numetal Limited applied as resolution applicants in the Corporate Insolvency Resolution Process of Essar Steel. The Resolution Professional for Essar Steel, after duly analyzing the resolution plans of both the applicants, disqualified them and declared them ineligible for the same in accordance with the Section 29 A of the Insolvency and Bankruptcy Code, 2016.
Both the companies approached the NCLT, Ahmedabad Bench in 2018, and it concurred with the decision of the RP to disqualify the Resolution Applicants. This was because in the case of Numetal, one of the shareholders was Rewant Ruia and whose father i.e. Ravi Ruia was a promoter of the Essar Steel. It has also issued a guarantee in favour of the creditors of Essar Steel. Therefore, Numetal was held ineligible in view of Section 29A (c) and Section 29A (h) of the Indian Bankruptcy Code.In the case of Arcelor Mittal, Netherlands was found to have been the promoter or exercised control over two companies namely, Uttam Galva Steels Limited and KSS Petron Limited becoming ineligible under Section 29A (c) of the Indian Bankruptcy Code. When the case was taken to the appellate authority i.e. NCLAT, it held that the AMIPL shall stay disqualified but gave a different judgment for Numetal, contrary to what NCLT held. The reason being that Rewant Ruia had divested his interest in Numetal in favour of a third party. The NCLAT order brought parity between financial and operational creditors of Essar Steel in matters of distribution of proceeds. Thereafter, AMIPL approached the SC against the decision of the NCLAT.
Section 29A of the Insolvency and Bankruptcy Code, 2016.
DECISION OF COURT
The final judgment of the SC was that both the Resolution Applicants were disqualified from submitting resolution plans as the plans submitted by them were in contravention of Section 29A of the code. But, exercising its extraordinary power under Article 142 of the Constitution of India, SC gave the Resolution Applicants one final opportunity which was to clear any outstanding dues regarding their NPA accounts within 2 weeks of the SC verdict.
The final outcome in the Essar Steel case will provide a significant boost to efforts to revive several corporate entities which are in a distressed state. It also lays down an important responsibility for NCLT and NCLAT to look at cases under the IBC beyond their legal issues and monetary claims. The implicants and consequences on the creditors, stakeholders, promoters, along with everyone whose interest depends on the revival of the company, should be kept in mind while exercising the adjudicatory power by these authorities.This judgment will set a precedent for other corporations which are going through an insolvency process and are awaiting resolution over the distribution of funds between different classes of creditors.
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