Court rules committee of creditors is supreme

By Karthik Somasundram and Shreya Gupta, Bharucha & Partners

Essar Steel India defaulted on repayment obligations to its creditors and in 2017 Standard Chartered Bank (SCB) and State Bank of India filed petitions for financial debt under the Insolvency and Bankruptcy Code, 2016. The petitions were admitted and a resolution professional was appointed by the National Company Law Tribunal (NCLT). Resolution plans were submitted by ArcelorMittal, Nu Metal and Vedanta. After many tribunal hearings and a Supreme Court case, the committee of creditors (CoC) approved the resolution plan of ArcelorMittal.

Karthik Somasundram
Bharucha & Partners

The NCLT, in turn, approved the resolution plan of ArcelorMittal with a modification to allot 15% of the resolution amount to the operational creditors with the remaining to be distributed among the financial creditors. On appeal, the National Company Law Appellate Tribunal (NCLAT) ruled that there cannot be differential treatment between financial and operational creditors and each class deserves equal treatment. Due to the conflict of interest, the CoC was not empowered to decide the distribution between classes of creditors. The NCLAT redistributed the resolution proceeds to ensure that financial and operational creditors were paid 60.7% of their admitted claims.

On appeal, the Supreme Court, in Committee of Creditors of Essar Steel Limited v Satish Kumar Gupta & Ors, disagreed and ruled on the jurisdiction of the NCLT and NCLAT to decide resolution plans approved by the CoC. Relying on section 30(4) of the code and regulation 39(3) of the Insolvency Resolution Process Regulations, 2016, the court held that the code accorded supremacy to the CoC’s commercial wisdom.

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