Tribunal says Section 12A of IBC allows withdrawal of resolution application by those who initiated the process.
Attempts by the Ruia family to regain control of Essar Steel suffered a setback on Tuesday as the National Company Law Tribunal (NCLT) found its `54,389-crore resolution plan for reviving the bankrupt firm invalid. The NCLT said shareholders could not make a plea of this nature.
A two-member Ahmedabad bench of the NCLT ruled that the plea by Essar Steel Asia Holdings to consider Ruias’ settlement plan for Essar Steel was not maintainable.
The Ruias are expected to appeal the verdict even as the resolution professional (RP) has submitted Arcelor Mittal’s resolution plan to the NCLT, Ahmedabad for its approval.
The NCLT said the Essar plea was not maintainable under Section 60(5) of the Insolvency and Bankruptcy Code (IBC) which empowers it to have jurisdiction to entertain or dispose of any application or proceeding by or against the debtor or the corporate person.
The bench said there had been no illegality on the part of the committee of creditors (CoC) in not accepting the proposal put forward by the Ruias. It noted only resolution applicants, not shareholders have the right to submit a plan.
Lawyers that FE reached out to observed that the story was far from over. “The SC has ruled that Section 12 A can be applied at a later stage. Also the courts have been unanimous on value maximisation though in this case Essar’s offer to pay financial as well as operational creditors has not found legs at NCLT,” a senior lawyer observed.
Nonetheless, some lawyers noted it was a setback for the promoters of Essar who had submitted the proposal under the recently introduced Section 12A of the IBC.
“The recent judgment of the Supreme Court has established that the section’s provisions are applicable retrospectively,” an Essar spokesperson noted.
Under Section 12A the adjudicating authority may allow the withdrawal of application under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% voting share of the CoC.
ArcelorMittal welcomed the ruling by the NCLT saying it protected the integrity of the IBC and ensures its legitimacy as a rules-based law.
The ArcelorMittal bid promises Rs 39,500 crore by way of cash upfront but was publicly challenged when Essar Steel promoters offered to pay Rs 54,389 crore towards a full settlement of the entire admitted claims of the financial creditors, operational creditors and workmen and employees of Essar Steel.
The Essar Steel insolvency proceedings have been mired in a legal wrangling after over 90% of the committee of creditors (CoC) accepted an offer by ArcelorMittal which was subsequently submitted by the resolution professional for Essar Steel to NCLT for approval. Subsequently, Essar Steel Asia Holdings, which is a holding company of Essar Steel, filed a caveat in the NCLT that it be allowed to plead its case before any orders are passed in the matter.
As many as 31 operational creditors of Essar Steel moved the NCLT in five separate petitions urging that it direct the CoC to ensure full payment to them and take necessary steps to modify ArcelorMittal’s resolution plan for that. Alternatively, they urged the tribunal to direct the CoC to also consider the last-minute offer of the Essar Steel promoters which promises to pay all creditors in full.