Arcelor Mittal Bid For Essar Steel: Key Aspects In SC Judgment

In what will have a long-standing impact on the IBC regime, the SC has decided the Essar Steel Insolvency matter in favour of the Committee of Creditors (CoC) of Essar Steel, and has set aside the NCLAT'sjudgment. The constitutional validity of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act, 2019), has been upheld however, the word 'mandatorily' in the proviso inserted by way of the Amendment in section 12(3) of the IBC has been struck down. The SC Bench comprising of Justices R F Nariman, Surya Kant and Ramasubramanian, has clarified that the wisdom of the CoC's decision is not subject to the adjudicating authority or the appellate authority's purview, and has also refused to apply the "equality for all" approach, as prayed for by the Operational Creditors (OCs), and the unsecured financial creditor Standard Chartered Bank (SCB). SC began hearing the oral arguments in the matter on 16th October 2019, and the same were concluded on 24th October 2019, giving the parties liberty to file written submissions if they so wished. The judgment deals with 10 key aspects pertaining to the corporate insolvency resolution process (CIRP) in one of the biggest insolvency matters of the country. The key aspects taken into account by the SC to arrive at the decision in the Essar Insolvency case are:1. Role of the Resolution Professional The Bench referred to several provisions and regulations made under the Code (IBC) to describe the role of the Resolution Professional (RP). While discussing the various duties of the RP to be carried out in the CIRP, the Bench confirmed that the role of the RP under the Code and the aforesaid Regulations, is not adjudicatory but administrative. Relying on its judgment in Swiss Ribbons, the SC Bench reasserted that RP is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the CoC, who may or may not approve it.2. Role of the Prospective Resolution Applicant Certain provisions and Regulations made under the Code were referred to show that the prospective RA must get complete information memorandum (IM) as well as the evaluation matrix (provided for under Regulation 36-B). The Bench asserted that the resolution plan submitted by the prospective RA must provide for necessary measures for the insolvency resolution of the corporate debtor for maximisation of the value of its assets. A reference was made to Regulation 38(1), which mandates the provision of priority in payment of amount due to operational creditors over financial creditors. In addition, the Bench was of the view that the RA in its Resolution Plan, must include provisions to deal with the interests of all stakeholders including financial creditors and operational creditors of the CD.3. Role of the CoC in the CIR processThe Bench observed that since nothing can be done qua the management of the corporate debtor by the RP, which impacts major decisions to be made in the interregnum between the taking over of management of the CD and corporate resolution by the acceptance of a resolution plan by the requisite majority of the Committee of Creditors, corporate resolution is ultimately in the hands of the majority vote of the CoC. The CoC decides the "feasibility and viability" of a resolution plan, after taking into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. It was clarified that it was open to the CoC to suggest a modification to the prospective RA's plan, affecting the payment of priority of dues. Thus, the SC essentially upheld the sanctity of the commercial wisdom of the CoC to determine as to how, and in what manner, the CIRP is to take place.4. Jurisdiction of the Adjudicating Authority and the Appellate TribunalThe SC's decision in K. Sasidhar was relied upon to hold that neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the CoC. It was concluded that the scope of enquiry and the grounds on which the decision of "approval" of the resolution plan by the CoC can be interfered with by the adjudicating authority (NCLT), is limited to what is set out in Section 31(1) read with Section 30(2), and by the appellate tribunal (NCLAT) under Section 32 read with Section 61(3) of the 66 of the Code. SC further held that Section 60(5)(c) of the IBC is in the nature of a residuary jurisdiction vested in the NCLT so that the NCLT may decide all questions of law or fact arising out of or in relation to insolvency resolution or liquidation under the Code. A harmonious reading of Section 31(1) and Section 60(5) of the Code shows that the residual jurisdiction of the NCLT under Section 60(5)(c) cannot, in any manner, whittle down Section 31(1) of the Code. ...

Arcelor Mittal Bid For Essar Steel: Key Aspects In SC Judgment

Arunima Bhattacharjee

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