The recent amendments to the Insolvency and Bankruptcy Code (IBC), passed by Parliament and awaiting assent of the President, were brought to the notice of the Supreme Court by a section of creditors on Wednesday. The bench was hearing a plea by Committee of Creditors (CoC) of Essar Steel challenging NCLAT’s July 4 order which approved steel tycoon Lakshmi Mittal-led ArcelorMittal’s Rs 42,000 crore bid for acquiring the debt-laden firm.
A bench of Justices R F Nariman and Surya Kant was told by some operational creditors in Essar insolvency case that they will be challenging the new amendments passed by Parliament as they affected them.
The top court sought assistance of the Attorney General in the matter and requested him to be present on August 19.
The CoC has sought quashing of the National Company Law Appellate Tribunal (NCLAT) order which had given financial creditors equal status with operational creditors in the distribution of the ArcelorMittal’s bid amount.
The top court on Wednesday gave a week to the operational creditors to file a writ petition challenging the new amendments to IBC and sought assistance of Attorney General K K Venugopal in the case.
“During the course of hearing, we have been apprised of the fact that amendments to the IBC have been passed by both houses of the Parliament. Counsel for respondents (operational creditors) take umbrage to some of these amendments and they want to challenge them by way of writ petition,” the bench said.
“We request the attorney general to be present on the next day of hearing,” it said and ordered the listing of Essar matter on August 19 along with the writ petitions to be filed within a week.
At the outset, the bench observed that the new amendments passed by Parliament may have some bearing in the case and said that it would be better if the matter is heard after some time.
When some counsels said that the new amendments may affect the interest of operational creditors in the case, the bench said it is of the prima facie view that operational creditors cannot be simply asked to go home.
The counsels for operational creditors of Essar said that they may challenge the new amendments, to which the bench said that they should file the writ petitions challenging the same within a week.
On August 1, Parliament had approved changes in the three-year old IBC providing greater clarity over distribution of proceeds of the auction of loan defaulting companies, with the Lok Sabha passing the Bill with voice vote.
The Insolvency and Bankruptcy Code (Amendment) Bill 2019 gives CoC of the loan defaulting company explicit authority over the distribution of proceeds in the resolution process and fixes a firm timeline of 330 days for resolving cases referred to the IBC.
Among others, the approved resolution plan would be binding on central and state governments as well as various statutory authorities.
On July 22, the top court had put on hold the sale of Essar Steel to ArcelorMittal as it agreed to hear the appeal filed by lenders against the NCLAT order, saying it would like to settle the issue “once and for all”.
The top court had said that the monitoring committee will continue to manage the company.
“Once the Committee of Creditors in their concerned wisdom had decided on division of assets, there should have been no re-distribution, like you are an Interim Resolution Professional (IRP). We would settle this issue once and for all,” the bench had observed at the outset.
Essar Steel was auctioned under the new IBC to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors.
In its July 4 order, the NCLAT had said that financial creditors will get 60.7 per cent of their admitted claims of Rs 49,473 crore, almost same as operational creditors.
The operational creditors with admitted claim amount of less than Rs 1 crore would get 100 per cent, while above Rs 1 crore would get 60.26 per cent and workmen and employees would get 100 per cent.
The tribunal had said that the CoC will have no role in the distribution of Rs 42,000 crore and allowed claims of the operational creditors such as Dakshin Gujarat, Gujarat Energy, Bharat Petroleum, Indian Oil, GAIL, ONGC, and the NTPC.
ArcelorMittal had told the NCLAT that it would pay Rs 42,000 crore, including a minimum guarantee of Rs 2,500 crore as working capital, for acquiring Essar Steel under the insolvency process.
The tribunal said the apex court had settled the issue of eligibility of ArcelorMittal India and could not be re-opened before the Appellate Authority at a stage where the ‘Resolution Plan’ approval was being considered.