The money paid by Mittal will go to the bank, mostly run by the government, whose loans have been repaid by Ruias.
In terms of money involved, this figure is one of the biggest bankruptcy resolutions. The result, important for banks and governments wishing to recover the NPA, came after a tortuous journey that marked intense litigation, raising doubts whether the bankruptcy law could succeed in recovering lakh crores lent to people who were chronically absent.
The SC order breathes new hope into the process by emphasizing that the Creditor Committee will have a firm decision on the resolution, with the role of the National Law Company Court and the National Law Company Appeals Court (NCLAT) limited to review whether the process is aligned. with the Bankruptcy and Bankruptcy Code.
Essar Steel was among the first batch of a dozen high profile bad debt cases referred by the Reserve Bank of India for bankruptcy in June 2017. Although the law provides a resolution in a maximum of 270 days, a series of cases in various forums resulted in the entire resolution process stretches for almost 28 months.
ArcelorMittal's proposal to take over an Indian company was approved by the Creditors Committee (CoC), which is led by banks, but new obstacles arose after a decision by NCLAT, which stated that financial creditors such as banks and operational creditors such as vendors were treated the same when completing contributions.
Under the IBC, it is the Creditor Committee that is responsible for making major decisions together with settlement professionals after the process has been initiated by the National Corporate Law Court.
The lender moves the top court and the bench of Justice Judge R Nariman, Surya Kant and V Ramasubramanian overriding the NCLAT order. In a 164-page assessment, the bench limits the role of the resolution applicant, the resolution professional, the CoC and the competent authority in the bankruptcy process.
There was a setback for the government as well because the court dropped provisions under the IBC making it "mandatory" to complete the bankruptcy process within 330 days.
However, it seems happy with the fact that the Essar case finally succeeded. Finance Minister Niramala Sitharaman said the decision strengthened the IBC's credibility and substantive nature and would help improve the resolution process.
"This much-awaited ruling also provides for resting a number of legal subjects under the IBC, which are being tested in various courts. This must significantly reduce the scope of litigation that has long been drawn under KPI and will ultimately lead to a faster resolution of depressed assets, "added SBI chairman Rajneesh Kumar.
Stressing the importance of the Creditors Committee, the SC bench said the adjudicating authority could not interfere with the commercial decisions taken by the CoC and the limited judicial review available for it was to see whether the panel had taken into account the fact that corporate debtors need to continue during the bankruptcy process, if necessary maximize value its assets, and that the interests of all stakeholders, including operational creditors, have been taken care of.
Furthermore, the court said that the court must refrain from interfering in commercial decisions taken by the CoC and they could at most request the committee to re-examine the resolution plan. "It is clear that when the CoC uses its commercial policy to make business decisions to revive corporate debtors, it must always consider the main features of this Code before arriving at a commercial decision to pay financial contributions and operational creditors. There is no doubt at all that the final policy of what must be paid and how much to pay for each class or subclass of creditors is on the Committee, however, the Committee's decision must reflect the fact that it has taken into account maximizing the value of the company's debtor assets and the fact that it has it is sufficient to balance the interests of all stakeholders including operational creditors, "he said.
"The NCLAT decision which replaced its policy with the commercial policy of the Creditors Committee and which also directed the acceptance of a number of claims made by the petitioners of the resolution, without prejudice to its right to appeal the decision above, must therefore be set aside," he said.
On the issue of equality for all approaches recognizing the rights of various classes of creditors, Bench said that if allowed then financial creditors are guaranteed to be, in many cases, given an incentive to choose liquidation rather than resolution, because they will have better rights if corporate debtors must be liquidated rather than an agreed resolution plan. "This will defeat the entire purpose of the Code which first ensures that the settlement of 89 distressed assets occurs and only if the same thing is not possible if liquidation follows," he said.