Essar Steel India Ltd’s Committee of Creditors (CoC) is sticking to its stand on how to distribute the capital ArcelorMittal has agreed to pay for acquiring the debt-ridden Indian company, as the bankruptcy resolution of one of India's most indebted companies drags on.
Billionaire LN Mittal-owned ArcelorMittal, the world's largest maker of the alloy, had last year won a long-drawn auction for Essar Steel but still hasn't been able to take over the company. While the National Company Law Tribunal approved ArcelorMittal's bid on March 8, some operational creditors and British lender Standard Chartered have filed appeals in higher courts.
On April 12, the Supreme Court stopped ArcelorMittal from making the payments and directed the National Company Law Appellate Tribunal (NCLAT) to expeditiously decide on the pleas of creditors including Standard Chartered.
Standard Chartered, DBS and some other secured and unsecured creditors of Essar Steel have contested that they should be treated on a par with secured financial creditors. Standard Chartered, in particular, says it will take a big hit if the ArcelorMittal deal goes through.
On April 23, the NCLAT observed that the CoC cannot discriminate between the operational creditors of the debt-ridden company based only on the amount of their dues. The appeals court also asked the CoC to submit a written response.
A person aware of the matter told VCCircle the CoC has informed the NCLAT that operational creditors should be differentiated based on the security they possess.
The CoC plans to approach the Supreme Court to settle the issue if the appellate tribunal does not accept its contention, the person said on the condition of anonymity as the matter is in court. The next NCLAT hearing is on May 13.
The CoC has divided operational creditors of Essar Steel into those with claims under Rs 1 crore and those with higher claims. According to ArcelorMittal's proposal, operational creditors with claims below Rs 1 crore will get their dues but others will receive almost none.
According to a notice published earlier, the total dues of operational creditors with claims below the threshold were only around Rs 200 crore. The total dues of those with higher claims stood at more than Rs 4,900 crore.
Essar Steel is saddled with debt of more than Rs 50,000 crore. As per ArcelorMittal's proposal, financial creditors would receive Rs 41,987 crore against their admitted claims of Rs 49,395 crore. Operational creditors were to get Rs 214 crore initially but this was increased to Rs 1,214 crore later. Standard Chartered would get only Rs 60 crore against its claims of Rs 3,487 crore.
Standard Chartered and the operational creditors have contested that the financial creditors, that is banks such as State Bank of India and Edelweiss Asset Reconstruction Company Ltd, will receive almost 90-92% of their dues. However, senior advocate Gopal Subramanium, representing the CoC, has said that according to a Supreme Court judgment financial and operational creditors cannot be treated equally.