SC CLEARS DECKS FOR LARGEST TAKEOVER UNDER IBC

On 15 November, 2019, the apex court held that the CIRP of ESIL will take place in accordance with the RP of Arcelor Mittal, as amended and accepted by the CoC, as it has provided for amounts to be paid to different classes of creditors by following Section 30(2) and Regulation 38 of the CIRP Regulations

- Madhavi Gokhlay

In a landmark ruling, the Supreme Court on 15 November, 2019, in the matter of the Committee of Creditors (CoC) of Essar Steel India Limited (ESIL) versus Satish Kumar & Others, set aside the 4 July, 2019 National Company Law Appellate Tribunal (NCLAT) or Appellate Tribunal order, and cleared the decks for takeover of ESIL by leading integrated steel and mining major, Arcelor Mittal.

Not only did the apex court pave the way for the largest takeover of bad debt under the Insolvency and Bankruptcy Code, 2016 (Code), it also settled several issues pertaining to the Corporate Insolvency Resolution Process (CIRP) under the Code, as follows:

One, it is the responsibility of the Resolution Professional (RP) to manage the affairs of the corporate debtor (CD) as a going concern during the CIRP.

Two, insolvency resolution is ultimately in the hands of the CoC, which may approve the resolution plan (RP) of a prospective resolution applicant by a majority vote after considering its feasibility and viability among other requirements. The feasibility and viability of the resolution plan is left to the majority decision of the CoC, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among various classes of creditors. In reinstating the CoC as the main decision-maker and driver of the CIRP, the Supreme Court upheld the government amendment to the Code earlier this year. However, it clarified that the CoC does not act in any fiduciary capacity to any group of creditors. Rather, a business decision based on ground realities is to be taken by the requisite majority, which is then binding on all stakeholders including dissenting creditors.