NCLT has learned to put its foot down, and that is the good news

In the last few months, the NCLT and the NCLAT have certainly come of age. That is good news as it means that the insolvency and bankruptcy process should go through a lot more smoothly.

Essar versus Arcelor Mittal

This was, perhaps, the biggest challenge for the NCLT and the NCLAT. First the background! After Essar had defaulted on loans to the tune of Rs.50,000 crore, the committee of creditors (COC) decided it apt to sell Essar Steel to the highest bidder, Arcelor Mittal. In fact, Arcelor had agreed to pay Rs.42,000 crore and also invest an additional Rs.8,500 crore into the steel plant to bring it up to market. The problem started after that. The promoters, Ruias, came up with a counter offer at Rs.54,389 crore promising to pay off the financial and operational creditors in full. When the proposal was originally struck down by the NCLT Ahmadabad bench, the Ruias had approached the NCLAT. However, even the NCLAT upheld the judgment in favor of Arcelor. The NCLAT was right in the sense that allowing the promoters to buy back the assets would make a mockery of the entire NCLT process and would be a setback to buying an interest in such cases. In fact, the NCLAT has tried to hit two birds with one stone. It has upheld the sanctity of the NCLT process and has also asked the COC to factor in the interests of operational creditors. This should keep all stakeholders happy.

Binani Cement was simpler

One of the allegations against the NCLT has been that they used a different set of standards for Ultratech and for Ruias. In the case of Binani Cements, Ultratech had come up with a substantially higher offer after Dalmia Bharat had won the bid. In this case, the NCLT had an easier job. A higher bid was in the interests of the financial and operational creditors of Binani Cements and hence the Ruia principle would not apply there. In the case of Binani Cements, the NCLT rightly gave Dalmia the opportunity to match the bid and only failing that the company was handed to Ultratech.

Finally, the RCOM / SBI story

This was perhaps the most confusing of the three stories. The Supreme Court had ordered RCOM to pay Rs.450 crore to Ericsson, an operational creditor. However, when RCOM tried to pay Rs.260 crore out of the tax refund, SBI did not release the funds. SBI’s contention was that giving preference to an operational creditor over the financial creditors went against the basic grain of NCLT. That is the reason when Anil Ambani approached the NCLAT to instruct SBI to release the funds to Ericsson, the NCLAT refused to intervene. NCLT was right in that the issue is totally outside the purview of the NCLT. In these 3 cases, the NCLT has shown that it has truly come of age as an economic facilitator!