The Apex Court gave its landmark decision in the field of IBM regime as it allowed the appeal by Committee of Creditors in Essar Steel insolvency to set aside the order of the National Company Law Appellate Tribunal.
The Supreme Court bench comprising of Justices RF Nariman, Surya Kant and Ramasubramniam had heard the batch of appeals challenging the NCLAT’S decision in Essar Steel insolvency resolution which is one of the most crucial and challenging insolvency matters in the country as per the present date.
While the judgment pronounced by Justice RF Nariman held that there was no equality between financial creditors and operational creditors. He said the the Adjudicating Authority cannot substitute the commercial wisdom of the Coc. Financial creditors enjoy primacy and the Adjudicating Authority cannot interfere with the commercial decisions of CoC.
Justice Nariman reading out the judgment said that:
“If the NCLT finds that legal parameters are not met, it can send back to CoC, but cannot tinker with the resolution plant.”
The Court also held that the time limit of 330 days for resolution to be not mandatory. It is open to NCLT to extend the timeline if required.
The NCLAT while approving the ArceloreMittals’s Rs. 42,000 crore bid for the acquisition of Essar Steel, held that financial and operational creditors must be treated at par under a resolution plan. It further ruled that the waterfall mechanism under Section 53 of IBC is only applicable to distribution of proceeds from liquidation and not to resolution bids.
The NCLAT further added that the financial creditors could not be classified on the basis of their security interest for the purpose of distribution of resolution proceeds.
Therefore the crux of the matter is that the Supreme Court has set aside the NCLAT Order upholding resolution plan of Arcelor Mittal.