SC allows Essar Steel’s operational creditors to challenge IBC amendments

A division bench headed by Justice Rohinton Fali Nariman and comprising Justice Surya Kant, heard the submissions by operational creditors and agreed to adjourn the case till 19 August. The operational creditors said they would file petitions within a week challenging the validity of the amendments to the IBC.

The SC bench also sought the presence of attorney general for assistance regarding the amendments and their effect on the case.

The Supreme Court had on 22 July put on hold the sale of Essar Steel India Ltd to ArcelorMittal after lenders to the bankrupt Indian steel maker challenged an appeals court ruling that said operational creditors have to be treated on a par with financial creditors.

The appellate tribunal had ruled that lenders and operational creditors will get 60.7 per cent of their outstanding claims and proportionately share the money that ArcelorMittal has offered to pay for the firm, which entails payment of Rs30,030 crore to financial creditors and Rs11,969 crore to operational creditors.

Operational creditors with admitted claim amounts of less than Rs1 crore would get 100 per cent, while for those with claims of more than Rs1 crore, the payment would be 60.26 per cent, according to the NCLAT ruling.

However, Parliament passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2019 on 1 August, which would replace the 6 June ordinance. Among many amendments, it gives committee of creditors of a loan defaulting company explicit authority over the distribution of proceeds in the resolution process and fixes a firm timeline of 330 days for resolving cases referred to the IBC.