Essar Steel Verdict Of Supream Court – Burning Issues – Free PDF

BASICS

• Essar Steel – Essar Steel India Limited is a fully integrated flat carbon steel
• Manufacturer – from iron ore to ready-tomarket products – with a current capacity of 10 million tonnes per annum (MTPA).

ESSAR STEEL

• Essar steel started suffering poses post 2010
• Around that time Essar Steel had borrowed crores of rupees
• By 2015, the company was saddled with financial creditor dues exceeding Rs 54 thousand crore.

• BANKS WENT TO NCLAT

• SBI and Standard Chartered Bank filed petition against Essar Steel in National Company Law Appellate Tribunal, Ahmedabad bench
• NCLaT admits Essar Steel for insolvency proceedings under the IBC . Satish Kumar Gupta appointed as Resolution Professional (RP).

ENTER LAXMI MITTAL

• Lakshmi Niwas Mittal is an Indian born steel magnate, based in the United Kingdom. He is the chairman and CEO of ArcelorMittal, the world’s largest steelmaking company.

ARCELORMITTAL

• Arcelormittal offered to buy Essar Steel and pay back its debt
• NCLT approves ArcelorMittal’s Rs 42,000 crore bid for Essar Steel.
• THEN NCLT HAD TO DECIDE HOW THE MONEY WOULD BE DISTRIBUTED
• Public-sector lenders are Essar Steel’s primary financial creditors. Vendors and suppliers are the operational creditors, the most prominent ones being Dakshin Gujarat, Gujarat Energy, Bharat Petroleum, Indian Oil, GAIL, ONGC, and the NTPC.
• Financial creditors are those who provide long-term capital in the form of loans. Operational creditors are usually the suppliers of raw materials, etc.

SUPREME COURT ENTERS 

• A consortium of banks led by the SBI had moved the Supreme Court against a National Company Law Appellate Tribunal (NCLAT) order in the case.
• The NCLAT had held that Essar Steel’s operational creditors be treated on par with financial creditors when settling the claims.

WHERE DOES THE LATEST ISSUE LIE?

• Essar Steel’s Committee of Creditors (CoC) had sought the quashing of NCLAT’s July 4 order that approved the Rs 42,000-crore bid for the debt-laden firm by ArcelorMittal. This was to be divided between the financial creditors who are owed Rs 30,030 crore and the operational creditors who are owed Rs 11,969 crore.

 WHY WERE FINANCIAL CREDITORS ANGRY?

• The financial creditors — in this case state-run banks — comprise the committee of creditors. While financial creditors are secured creditors, the operational ones are not. That’s why financial creditors are up in arms against the NCLAT’s equal status order, which they say is a disincentive to lenders and investors.

WHAT DID SUPREME COURT SAY?

• The supremacy of financial creditors has been restored. NCLT’s formula of equal distribution amongst the financial and operational creditors– which violates the commercially accepted norms of lending- now stands overruled with this ruling.
• Banks are set to recover almost 92 percent of their claims against Essar Steel, amounting to about 42,000 crores—the single biggest recovery under IBC for banks so far.

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