Arcelor Mittal Nippon Steel, IOC decide to arbitrate dispute on Essar Steels

Since the Supreme Court had reserved orders in the case on the aspect of whether the dispute is arbitrable, the lawyers for both the sides urged he apex court not to pass judgment

Steel manufacturer  Arcelor Mittal Nippon Steel Limited (AMNS) and Indian Oil Corporation Limited (IOC) on February 9 told the Supreme Court that they have decided to appoint arbitrators to decide the dispute between them regarding Essar Steel India Limited (ESIL). ESIL was taken over by AMNS through the corporate insolvency resolution process.

Since the Supreme Court had reserved orders in the case on the aspect of whether the dispute was arbitrable, the lawyers for both sides urged the apex court not to pass judgment.

A bench led by Chief Justice of India (CJI) DY Chandrachud indicated that the court would list the case formally and pass directions to the parties in this regard.

In October 2023, the Delhi High Court dismissed IOCL's plea to appoint an arbitrate to adjudicate a dispute that emanated from a gas supply agreement (GSA) it entered into with ESIL in 2009.  In 2017, ESIL terminated the agreement, however, IOC objected to the termination on the ground that it had not committed any breach of its contractual obligations. IOC alleged that the termination notice was liable to be viewed as ineffective.

Subsequently, IOC also issued a demand notice asking ESIL to pay certain amounts for the abrupt termination of the GSA. It also called upon ESIL to participate in the amicable settlement procedure as per the GSA. Since ESIL did not respond, IOC invoked arbitration in terms of the Gas Supply Agreement.

However, amid this dispute, the National Company Law Tribunal (NCLT) bench at Ahmedabad admitted Essar to the insolvency resolution process and appointed a Resolution Professional (RP). IOC lodged a claim of over Rs 3,500 crore with the RP; who admitted the claim for a notional value of Rs 1. This notional value featured in the resolution plan, which was given a go-ahead by the Supreme Court in 2019.

The resolution plan was implemented and AMNS took over the company.  However, IOC approached the Delhi High Court in 2022 for the appointment of an arbitrator to adjudicate its dispute, which had already been put to rest by the resolution plan.

The High Court concluded that the resolution plan was approved by the Supreme Court after hearing the parties and hence it lends an evident quietus to the entire controversy. The HC further held that once a party accepts the approval of the resolution plan, which results in the extinguishment of their claims, it cannot be reopened.