Essar Steel Sale: Supreme Court Orders Status Quo To Be Maintained

A worker uses a cutting torch in a workshop in the Naraina steel and iron market area of New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

The Supreme Court has ordered the various parties involved to maintain status quo on the sale of Essar Steel Ltd., halting steel giant ArcelorMittal from making a payment to purchase the insolvent company.

The Ahmedabad bench of the National Company Law Tribunal had approved ArcelorMittal's resolution plan, which entails payment of Rs 42,000 crore to financial creditors, on March 9. While approving the plan, the bench had also advised the committee of creditors to reconsider the allocation to Standard Chartered Bank and operational creditors. It had suggested allocating 85 percent of the bid amount to financial creditors and 15 percent to operational creditors.

Why The Status Quo?

The tribunal's order was appealed by the committee of creditors before NCLAT, which in its March 20 order, directed the resolution professional and resolution applicant to implement the NCLT-approved plan and kept the issue of allocation between financial and operational creditors open. During the earlier hearings, the NCLAT too directed the committee of creditors to reconsider the amount being allocated to financial and operational creditors.

The acceptance of the ‘Resolution Plan' in effect has not stayed to ensure that except distribution between the ‘Financial Creditors' and the ‘Operational Creditors' rest of the plan is implemented.

NCLAT Order, March 20

Lawyers involved in the case explained, on the condition of anonymity, that this would've meant payment of Rs 42,000 crore by ArcelorMittal.

On April 1, State Bank Of India—the lead lender on Essar Steel's committee of creditors—approached the Supreme Court against NCLAT's 'suggestion' of reconsidering the allocation to financial and operational creditors. It had also asked the apex court for a direction that the resolution plan be implemented i.e. the payment by ArcelorMittal be made, only after the question of distribution between financial and operational creditors is decided, lawyers involved in the case told BloombergQuint.

It is against this plea that the apex court has now ordered a status quo. A two-judge bench headed by Justice Rohinton F Nariman delivered the judgment. The court directed the bankruptcy appellate tribunal to expeditiously decide on appeals in the Essar Steel case, according to a Bloomberg report.