NCLAT refuses to stay Essar Steel sale to ArcelorMittal

Seeks new distribution plan for bid amount between financial and operational creditors of Essar Steel

(FILES) A file photo taken on January 25, 2012 shows the logo of Arcelor Mittal as its steel plant in Villaverde, near Madrid. - ArcelorMittal announced on October 12, 2018 that it has reached an agreement to sell four of its European sites to Liberty House in order to address European competition concerns as part of its proposed acquisition of Italy's Ilva. The four steel plants, located in Romania, the Czech Republic, Macedonia and Italy, employ more than 12,500 people. (Photo by Dominique FAGET / AFP)

The National Company Law Appellate Tribunal (NCLAT) on Friday refused to stay a bankruptcy court order approving steel giant ArcelorMittal’s ₹42,000-crore takeover bid for Essar Steel and sought a fresh plan for the distribution of bid amount between financial and operational creditors of the debt-laden firm.

Essar Steel directors had challenged the Ahmedabad-bench of National Company Law Tribunal’s (NCLT) nod to global steel giant ArcelorMittal SA’s bid for the debt-laden company on the plea that their offer of ₹54,389-crore was superior as it clears 100% outstanding of both financial and operational creditors. Standard Chartered too moved the NCLAT against the plan as its counsel contended that the bank was being given only 1.7% of its total dues from Essar Steel, while other financial creditors, forming part of the Committee of Creditors (CoC), were getting over 85% of their dues. A two-member Bench, headed by Justice S.J. Mukhopadhaya, refused to stay the NCLT nod to ArcelorMittal’s resolution plan and posted the matter for March 18.

It also asked State Bank of India-led CoC to bring a fresh distribution plan at the next date of hearing, saying “there cannot be any discrimination... all are equal.”

Making a suggestion, the NCLAT said all operational creditors below ₹1 crore should get 100% of the dues and so should the employees of Essar Steel.

Only 90% of ₹42,000 crore should be allowed for financial creditors.

ArcelorMittal’s resolution proposal involves financial creditors getting ₹41,987 crore out of their total dues of ₹49,395 crore. Operational creditors, under the plan, would get just ₹214 crore against the outstanding of ₹4,976 crore. If the ArcelorMittal plan is implemented, Standard Chartered will only get ₹60 crore against its claims of ₹3,187 crore from Essar Steel.

The NCLAT bench asked the committee of Essar Steel lenders to come up with a distribution plan by Monday saying it cannot discriminate on the basis of secured and unsecured creditors. It was of the view that the CoC cannot reserve 92% of the bid amount for financial lenders and leave just 4% for operational creditors.