Essar Insolvency: SC Hears Arguments Of Standard Chartered Bank & Operational Creditors Against CoC & Arcelor Mittal [Read Written Submissions]

Picking up from the last hearing, Sibal appearing on behalf of Standard Chartered Bank (SCB) continued his arguments on the third day of the Essar Steel Insolvency hearing. The Supreme Court Bench led by Justice Nariman started hearing the batch of appeals against the NCLAT's decision in the Essar Steel insolvency resolution, on 16th October, 2019. Countering the argument put forth by the CoC (Committee of Creditors, Essar) and Arcelor Mittal India Ltd. (AMIL) that an upfront payment of Rs. 42000 cr. has been made keeping mind the 'just' treatment of all the stakeholders, Sibal argued that there was no need for 'an upfront payment' at all. He submitted that the resolution plan should have ideally provided for paying off all the creditors slowly, as that's what resolution is all about. "Any resolution plan must provide for costs, and dues of the OCs (Operational Creditors) must have priority while paying off debts", said Sibal. He further contended that if there's ambiguity of coverage of OCs then RP (Resolution Professional) must ask for clarity. Referring to the amended provision, he raised the issue that under the amended section 30(2)(b), there's no protection of OCs. It was Sibal's contention that the 'Core Committee' of Essar, comprising of secured financial creditors viz. SBI,IDBI, ICICI and EARC, illegally negotiated in private with AMIL, and did not reveal the final commercial offer to SCB till the last minute. The Final Resolution Plan ultimately offered a sum of Rs. 39,500 crores as upfront amount, which was lower than the commitment made by AMIL to Supreme Court, Sibal contended. He argued that in a 'show of artificial compliance', a sum of Rs. 2,500 cr. was added to the upfront amount of Rs. 39,500 cr. as 'guaranteed working capital adjustment' to reach the figure of 'Rs. 42,000 crores'. Sibal referred to this 'working capital adjustment' as a complete eyewash since the working capital adjustment already accrued and payable to the creditors of Essar, as of June 2019, was Rs. 5,339 crores, in addition of the upfront cash. Not only did SCB challenge the 'Core Committee' for its secret negotiations, but also questioned its very validity. Sibal argued that there was no provision in the Code that permits constitution of a Core-Committee or Sub-Committee or delegating the CoC to such a core or sub Committee. He contended that the sub-committee showed a certain amount of bias towards SCB as, SCB was kept out of negotiations taking place between the CoC and AMIL, and was only informed about the plan on the last day before voting took place. Due to the secret negotiations between AMIL and the sub-committee, SCB contended that AMIL agreed to delegate the right to decide the manner of distribution to the CoC, and that such delegation was 'wholly unwarranted'. Questioning the role of distribution taken over by the CoC, Sibal on SCB's behalf argued that the CoC is not authorised to decide the distribution of the resolution plan, and going by the provisions of section 30(4) of the IBC (Insolvency and Bankruptcy Code, 2016), the jurisdiction of the CoC is limited to consider the feasibility and viability of the resolution plan. However, it was argued by SCB that the Adjudicating Authority (NCLT/NCLAT) can examine the legality and validity of a resolution plan approved by the CoC on the touchstone of Section 30(2) read with Section 60(5)(c) of the IBC, and can also therefore determine all questions regarding distribution of proceeds. Furthermore, relying upon the NCLAT's judgment in Binani Industries v/s Bank of Baroda and Anr., Sibal submitted that once a creditor is classified as a Financial Creditor, that creditor is entitled to be treated equally with all other Financial Creditors. In support of this argument, he said that as far as the UNCITRAL Legislative Guide on Insolvency Law were concerned, they were precisely a guide to the legislatures of various countries in the matter of framing insolvency laws but ultimately, it is the Code (IBC) alone that determines the question to be dealt with in Insolvency matters. Deliberating upon the question whether the NCLAT had overstepped its jurisdiction while taking decision on the distribution, Therefore, Sibal contended that questioning the correctness of the distribution proposed was within the scope and ambit of NCLAT's jurisdiction and the CoC's argument that it has abrogated to itself the right to re-write the resolution plan could not stand. He further pressed that the change in the distribution undertaken by NCLAT was not unilateral since AMIL had maintained that it was agnostic to the manner of distribution and authorized NCLAT to alter the distribution in the manner considered fit. On the position of the dissenting FCs (Financial Creditors), Sibal argued that there was no need for dissenting FCs in the IB Code. He said that there was no provision in the Code to...

Essar Insolvency: SC Hears Arguments Of Standard Chartered Bank & Operational Creditors Against CoC & Arcelor Mittal [Read Written Submissions]

Arunima Bhattacharjee

The Court has concluded oral hearings in the case.

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