News

July 11, 2019

Lenders To Challenge NCLAT’s Essar Steel Order In Supreme Court Soon, Says State Bank Of India Chairman Rajnish Kumar


[ By Bobby Anthony ]

Essar-Steel-&-Rajnish-Kumar

State Bank of India’s (SBI) Chairman Rajnish Kumar has gone on record stating that lenders will move the Supreme Court against the National Company Law Appellate Tribunal (NCLAT) soon after it awarded a higher payout to Essar Steel’s operational creditors and treating them on par with secured lenders.

The appellate tribunal had stated that secured creditors will get only 60.7% of their Rs 49,473 crore claims and the rest will go to operational creditors, treating them at par with the financial creditors.

Thus, the NCLAT effectively gave operational creditors equal status as secured lenders, by approving ArcelorMittal’s Rs 42,000-crore bid for the bankrupt flagship company of the Ruias-led Essar Group.

The SBI Chairman cited provisions of the Companies Act, there is a distinction between secured and operational creditors, and that the former have greater rights on company assets.

He stated that the NCLAT order is a huge disincentive for secured creditors and an incentive for operational creditors, since the order effectively gave a company’s secured creditors the same treatment as operational creditors.

Such an NCLAT order, he said, would make bankers hesitate to use Insolvency & Bankruptcy Code provisions to resolve bad assets until principles of the law are clearly laid out, adding that he hoped that clarity would emerge once the NCLAT order is challenged in the Supreme Court.

He stated that the lack of distinction between secured creditors and operational creditors after the recent NCLAT order has only complicated the process of resolution.

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