The Aftermath Of Essar Steel Judgment

A look at the purport of the judgment passed by the NCLAT…

The recent Essar Steel Judgment has created quite a stir with questions like – “Has the NCLAT gone wrong in the Judgment, in order to bring the Insolvency Code to work better or in an attempt to be fair? Has the NCLAT over-interpreted the provisions of the IBC?” - doing the rounds.

Hopefully, the Supreme Court will soon set all these inhibitions to rest. In the meanwhile, this is an attempt to take a close look and dissect the purport of the Judgment passed by the NCLAT.

The core findings of the Judgment are:

Firstly, that the

(i) financial creditors are a single class, and

(ii) financial creditors and operational creditors must be treated at par and cannot be discriminated.

While analyzing the first ratio, the judgment should have dwelled upon the reason as to why a financial creditor agrees to grant financial assistance with or without security. The reasons are simple – firstly, an unsecured creditor charges a much higher interest than a secured creditor (gets benefited more while the company is hale and hearty as compared to secured creditors). Considering this, the question arises as to why secured creditors, shouldn’t be given a better share of the revival plan?