Essar Steel insolvency in focus as acquisition by ArcelorMittal Nippon Steel India questioned before NCLT

If allegations regarding stamp duty are upheld, potential liabilities could run into thousands of crores

The Essar Steel insolvency case, once hailed as a milestone under India’s Insolvency and Bankruptcy Code (IBC), is once again in the spotlight, after fresh applications before the National Company Law Tribunal (NCLT) raised questions over compliance with stamp duty laws and debt assignment rules in transactions linked to ArcelorMittal India (AMIPL).

The New Delhi bench of the NCLT on August 29 heard arguments for more than two hours in a case filed by Feedback Highways OMT and Sayam Shares and Securities. The petitioners were creditors to Bhubaneshwar Expressways - a subsidiary of KSS Petron - and have alleged that loan assignment agreements executed in October 2018 by AMIPL were not in line with the law.

Stamp Duty Dispute

According to the application, AMIPL acquired secured debt of Rs 1,343.9 crore from banks in the KSS Petron case and Rs 4,921 crore in the Uttam Galva Steels matter. The petitioners contend that stamp duty on these transactions was underpaid, citing dues far higher than what has been paid. The Collector of Stamps in Maharashtra has issued show-cause notices and ordered production of the agreements, with hearings ongoing, with the Bombay High Court monitoring the process.

Another point raised is whether AMIPL, not registered as an Asset Reconstruction Company (ARC) or a Non-Banking Financial Company (NBFC), could legally acquire secured debt under Section 5 of the SARFAESI Act. RBI communication earlier this year had confirmed that AMIPL does not hold such licenses.

Counsel for the applicants have submitted to the court that this could render the agreements void, but the matter remains under judicial consideration. No findings have been made by either the NCLT or the High Court.

Impact on Essar Steel

The petitioners also argued that the Rs 42,000 crore Essar Steel resolution plan, approved by NCLT Ahmedabad in March 2019 and later upheld by the Supreme Court, relied on a similar loan assignment structure. Operational creditors of Essar Steel have separately approached NCLT seeking recall of that approval, citing what they describe as new evidence. The application is pending, with notice already issued. Legal experts are of the view that while recall of an order already tested by the Supreme Court is unusual, courts retain the power to revisit decisions if fraud is proven. No such determination has been made to date.

If allegations regarding stamp duty are upheld, potential liabilities could run into thousands of crores, factoring in both duty and penalties. In Essar Steel’s case alone, estimates by petitioners place stamp duty at over Rs 1,700 crore, though the final figure will depend on adjudication.

At the heart of the matter is the manner in which ArcelorMittal became eligible to bid for Essar Steel in the first place. Under Section 29A of the IBC, promoters of defaulting companies were barred from participating in insolvency bids. Since ArcelorMittal had past links to Uttam Galva Steels and KSS Petron, both of which were classified as non-performing assets, it had to first clear their dues before bidding. The company sought to do this through loan assignment agreements in October 2018, which transferred debts of around Rs 4,921 crore and Rs 1,343 crore respectively. Petitioners now argue that these assignments themselves suffered from legal and procedural infirmities.

NCLT has directed objecting parties to file written submissions by September 1. Further hearings are scheduled next week in both New Delhi and Mumbai with the Bombay High Court expected to review stamp duty proceedings on September 4.

The developments come as India’s IBC framework faces scrutiny from policymakers and investors, and while the Essar Steel resolution was once celebrated as a demonstration of the code’s effectiveness, ongoing disputes illustrate how complex cases can often result in prolonged litigation.

For ArcelorMittal Nippon Steel India (AM/NS India), the joint venture that acquired Essar Steel, the outcome of these hearings will be closely watched. The company has yet to file replies on some matters, according to tribunal records, and will be expected to present its case in the coming weeks.