The Supreme Court on Wednesday dismissed the appeals of Essar House and Essar Services against the Bombay High Court’s order that had asked them to collectively deposit over Rs 82 crore towards security deposit that they allegedly owed to ArcelorMittal Nippon Steel India.
The security amount was to be refunded to ArcelorMittal after it had vacated and handed over peacefully the premises in Mumbai’s Mahalaxmi area which was occupied by Essar Steel prior to its takeover by the former. ArcelorMittal and Japan’s Nippon Steel had acquired Essar Steel and renamed it as ArcelorMittal Nippon Steel.
A bench led by Justice Indira Banerjee said that “we find no infirmity in the well-reasoned judgment and order of the division bench. The appeals are, accordingly, dismissed”.
The division bench of the HC had upheld its single judge’s order that allowed Arcelor’s plea and asked Essar Services and Essar House to deposit Rs 47.41 crore and `35.5 crore, respectively, with the HC or furnish a bank guarantee of any nationalised bank for the entire amount with interest.
The SC said that even if any prior inter se arrangement existed between the parties, Essar Services could not have adjusted the security deposit payable to Essar Steel under the amended agreement against the alleged dues of Essar Steel to a third party during the CIRP.
It is not in dispute that a sum of about Rs 35 crore odd was paid by Essar Steel to Essar House and Rs 47 crore odd to Essar Services, being the appellants in the respective appeals, by way of security deposit which is a refundable security deposit. Prima facie, the refundable security deposit is not being released to Arcelor on the purported ground of a convoluted series of internal arrangements between group companies for diversion of the security deposits towards liquidation of alleged dues of Essar Steel to third parties, the court said.
In April 2016, Essar House had entered into a rental agreement with Essar Steel to rent out a property in Mumbai’s Mahalaxmi area for which Essar Steel had paid Rs 25.80 crore as interest-free refundable security deposit. Essar Services and Essar Steel mutually reconciled their accounts in March 2018, acknowledging that Rs 47.41 crore was paid to Essar Services as security deposit and Rs 23.21 crore was payable by Essar Steel to Essar Services for providing accounting and other services.
Essar House had in November 2019 asked Arcelor to vacate its premises pursuant to the takeover of Essar Steel. After handing over the possession of the premises Arcelor had called upon Essar House to refund the interest-free security deposit of around Rs 35.52 crore. However, Essar House had refused, saying no security deposit was left to be refunded to Arcelor as it had taken over loan of Rs 26 crore due from Essar Steel to Marvel Mines and had adjusted the same against the security deposit kept by Essar Steel.
When the Essar Group entities failed to return the deposit, ArcelorMittal decided to invoke arbitration and had approached the HC to secure the amount till the tribunal decided the dispute.