A high profile resolution that had been the lens through which much of the Indian public observed the functioning of the Insolvency and Bankruptcy Code, has arrived at a major milestone.

The National Company Law Tribunal in Ahmedabad has approvedArcelorMittal’s Rs. 42,000 crore resolution plan to take over the debt-ridden Essar Steel, that translates into a haircut of about 14% for the lenders.

If it goes through, it will be the largest single recovery of debt under the fledgling Code.

One of the 12 large non-performing assets accounts identified by the Reserve Bank of India for bankruptcy proceedings to recover dues of banks and financial institutions, Essar Steel’s largest lenders had filed insolvency proceedings at the Ahmedabad Bench of the NCLT in June 2017.

270 days, more or less?

The NCLT’s approval took 583 days, instead of the mandated 270 days. The deal had been approved by Essar Steel’s Committee of Creditors in October, 2018. Bloomberg Quint has calculated that the cost of the delay amounted to Rs. 9911 crore.

To ensure the speedy resolution of cases under the IBC, bankers have suggested, among others, the introduction of a mechanism to reduce unwanted litigation and strict adherence to the timelines under the code.

The government said meanwhile, that it is looking at ways to ensure ‘frivolous bids’ are not placed.

DNA has examined the “missing timelines” issue closely.

Appeals to come, promoter’s backdoor

The IBC provides for an appeal to the National Company Law Appellate Tribunal and then to the Supreme Court, and it is unlikely that Essar Steel’s promoters, who bid a much higher Rs. 54,389 crore, will let go without a fight.

In fact, three directors of the erstwhile board of Essar Steel have alreadyapproached the NCLAT against the order.

Sustained efforts by the promoters to wrest back control of Essar Steel had been a feature of the entire saga.

While the new Section 29A deters errant promoters from participating in the resolution process under IBC, one recent NCLAT ruling has shown that a liquidator introducing a scheme of arrangement under Section 230 of the Companies Act may offer an entry to promoters who are otherwise ineligible to acquire assets under IBC.

Operational pains

While the ArcelorMittal plan promises to clear Rs. 192 crores of dues owed to operational creditors, the NCLT Ahmedabad has suggested that the payment of ₹42,000 crore by ArcelorMittal be distributed among financial and operational creditors in the ratio of of 85:15.

A forum of operational creditors with over Rs 1 crore in admitted dues from Essar Steel had previously appealed to ArcelorMittal to pay their dues as well.

Meanwhile, the Insolvency and bankruptcy Board of India (IBBI) said both operational and financial creditors have benefited alike from resolutions under the IBC. “Our data shows that after resolutions, recovery of financial creditors on an average have got 48 per cent of their claims. While, the operational creditors from the same resolution have got back 48.3 per cent, though marginally, they are better treated,” IBBI chairman M S Sahoo said.

Liquid courage

Because the law’s objective has been to sustain businesses as going concerns, the IBC does not allow direct liquidation without going through the mandatory process of insolvency resolution. While bankers said that cases of liquidation are likely to rise, the IBBI said it would now add regulations to limit sick companies from being liquidated, even if attempts to revive them fail during a resolution process, M.S. Sahoo has said.

The IBC, which was neither expedient nor appropriate in the Indian context, may hasten the demise of entrepreneurship and promotership in India, one writer has argued.

But a VCCircle panel on the IBC featuring some professionals who have worked on the Code for a few years, is a good place to find out how it hasworked in practice.

The NCLT Bench had also rejected pleas by Karur Vysya Bank to reject ArcelorMittal’s resolution plan citing pending dues from ArcelorMittal.

And sometimes, when it is difficult to keep track of all the changes the IBC has been through in its short life, this Economic Times feature may help.

Who can initiate? New MCA Notification

The Ministry of Corporate Affairs has notified on February 27 that the persons eligible to make an application for initiating corporate insolvency resolution process against a corporate debtor before the adjudicating authority, on behalf of the financial creditor under Section 7 of the IBC, are (i) a guardian; (ii) an executor or administrator of an estate of a financial creditor; (iii) a trustee (including a debenture trustee); and (iv) a person duly authorised by the board of directors of a company.

From the docket

In Liberty House Group v. State Bank of India, the Delhi High Court held that the civil and high courts did not have jurisdiction over matters on which the NCLT or NCLAT had jurisdiction under the IBC. “The jurisdiction of this Court will also be barred by Section 231 of the Code which provides that “No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered, by or under, this Code to pass any order…””, the court said.

If a member or creditor of the corporate debtor approaches it for compromise or settlement under Section 230 of the Companies Act, 2013, the liquidator on behalf of the company has to move an application before the National Company Law Tribunal, the NCLAT said, upholding its earlier judgment in S.C. Sekaran v. Amit Gupta, in Rajesh Balasubramanian v. Everon Castings.

In Sunshine Caterers v. Redreef Finance & Investment, NCLAT held that if the Committee of Creditors has approved the application under Section 12A with majority voting share of 90%, “the Adjudicating Authority cannot further look into the matter and is required to allow the applicant to withdraw the application, if it is filed”.

Regulation 30A could not override the substantive provisions of Section 12A and “no discrimination can be made for withdrawal of an application under Section 7 or Section 9 on the ground that the application was filed before a cutoff date or filed after a cutoff date”, the NCLAT said in Krishna Kumar Mintriv. Kamlesh Kumar Sighania, referring to the judgment of the Supreme Court in Brilliant Alloys v. S. Rajagopal.

The NCLT, Mumbai Bench in Oriental Bank of Commerce v. Ruchi Globalobserved that “IBC nowhere says that irrespective of all the contractual obligations, a financial creditor can file by itself without the knowledge/approval of other financial creditors.”

That’s all we have for you this month. We hope that this update on India’s insolvency laws has been useful and that you will be reading these again next month.

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