The December order allows for withdrawal of insolvency proceedings against a debtor
A Supreme Court order on an insolvency case could come to the aid of the Ruias who are battling to keep Essar Steel within the Essar Group fold.
The Ruias had, in a last-minute move, proposed to withdraw insolvency proceedings against Essar Steel and offered to pay Rs 54,000 crore to the lenders. But the Committee of Creditors (CoC), consisting of Essar Steel lenders, had chosen to go with ArcelorMittal's offer of Rs 42,000 crore. The Ruias had appealed against this.
The promoters may now have another argument to support their case.
The Supreme Court on December 14 delivered an order on the insolvency proceedings against Brilliant Alloys, a company registered in Chennai. The promoters of the company had proposed that insolvency and bankruptcy proceedings be withdrawn in lieu of payment of outstanding dues. Even though the proposal was agreed to by the creditor State Bank of India, the Chennai bench of National Company Law Tribunal (NCLT) turned it down.
The NCLT bench had cited clause 30A of the Insolvency and Bankruptcy Code (IBC), according to which a resolution process can't be withdrawn after issuing an invitation for expression of interest.
But Justice Rohinton Fali Nariman and Justice Navin Sinha in their order took another view. The order issued by them said: "According to us, this regulation has to be read along with the main provision section 12A which contains no such stipulation."
"Accordingly, this stipulation can only be construed as directory depending on the facts of each case. Accordingly, we allow the Settlement that has been entered into and annul the proceedings."
Section 12A allows for the withdrawal of an insolvency case, but with the approval of 90 percent of the CoC.
"The order should help the Ruias. The Supreme Court is clear the Clause 30A is only directory in nature. An insolvency case can be withdrawn at any stage," said a lawyer from a legal firm.
The order in the Brilliant Alloys matter is not the only one that could help the Ruias present their case.
In an order delivered on December 21, the Mumbai bench of the NCLT ruled that the CoC can't refuse a bid even if it has come after the deadline.
This was regarding a petition by Omkara Assets Reconstruction, which had appealed against the resolution professional of Unimark Remedies, facing insolvency proceedings. The lenders had refused to accept Omkara's bid, as it had come after the deadline.
The order said: "The rejection of the Resolution Plan... is certainly against the law/Code and we hereby direct the Respondent to forthwith consider the Resolution plan of the Applicant on its merits and a judicious decision may be taken in the best interest of the parties concerned."
While it could be argued that the order will help the Ruias, with their proposal seen as a 'last-minute one,' there is a difference. While Omkara Assets had submitted an expression of interest for Unimark that was accepted as one of the resolution applicants, in the Ruias case it was not so. Essar Steel had three bidders - Numetal, which had Essar co-founder Ravi Ruia's son Rewant Ruia as a shareholder, ArcelorMittal and Vedanta Resources.
"In Essar Steel's case, the Ruias are not presenting a resolution plan, but want the insolvency proceedings to be withdrawn," said the legal firm executive quoted above.The next hearing of the case at the NCLT is on January 7.