Summary
In the Essar Steel resolution, the Supreme Court rejected the appellate tribunal’s equal-percentage redistribution among differently situated creditors and upheld the creditors’ commercial discretion subject to statutory safeguards. It sustained the 2019 distribution amendments, struck down only the mandatory character of the 330-day deadline, and recognised narrow exceptional extensions. The accepted ArcelorMittal plan governed resolution, with specific rulings on claims, guarantees and connected proceedings.
Issues
- How far courts could review or modify a creditors’ approved resolution plan.
- Whether equitable treatment required identical recovery percentages across creditor classes.
- Whether negotiating subcommittees were permissible.
- How approval affected guarantees, undecided claims and interim profits.
- Whether the 2019 timeline and distribution amendments were valid.
Provisions considered
- Sections 30(2)(b), 30(4), 31 and 61(3), Insolvency and Bankruptcy Code, 2016The creditors determine commercial distribution within statutory protections; adjudicatory review is confined to the Code’s requirements, and the approved plan binds stakeholders. (¶¶ 39, 40, 41, 42, 46, 56, 66, 67, 71, 80, 81, 82, 83, 89, 92, 103)
- Section 12(3), second and third provisos, Insolvency and Bankruptcy Code, 2016Only the word mandatorily was struck down. The usual 330-day outer limit, including litigation time, remained subject to narrow exceptional extensions. (¶¶ 71, 74, 78, 79)
- Regulations 38 and 39(3), IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Stakeholder interests must be addressed, but equal percentages across different classes are not required. Commercial modifications rest with the creditors. (¶¶ 30, 37, 38, 46, 56, 57, 103)
Held
- The resolution professional performs administrative rather than adjudicatory functions, managing the debtor and collating and verifying claims while placing compliant plans before the creditors. (¶¶ 20, 21, 22, 23, 24, 25, 26, 27)
- Commercial wisdom includes distribution. Review cannot substitute an equitable redistribution; it checks statutory compliance, continued operation, value maximisation and consideration of stakeholder interests, with remittal where necessary. Residuary jurisdiction does not enlarge that review. (¶¶ 40, 41, 42, 43, 46, 58, 81)
- Equitable treatment concerns similarly situated creditors. Different financial, operational, secured and unsecured classes may receive different recoveries; the liquidation waterfall is not itself imported as mandatory resolution distribution. (¶¶ 47, 54, 55, 56, 57, 80, 83, 89, 90, 91, 92, 93)
- The creditors cannot delegate final plan approval, but may use subcommittees for negotiations and ministerial tasks subject to their own approval and ratification. That occurred here. (¶¶ 59, 60, 61, 62)
- The plan bound guarantors and preserved creditors’ enforcement rights under its terms; the appellate extinguishment was set aside. The Court expressly avoided prejudicing pending guarantee litigation. (¶¶ 63, 64, 65, 66)
- A successful applicant must know the liabilities it assumes and begin on a fresh slate; undecided claims cannot later undermine the accepted plan. Interim profits were governed by the agreed request-for-proposal provision, which excluded using them to pay debts here. (¶¶ 67, 68)
- The word mandatorily in the 330-day deadline was unconstitutional. Extensions remain exceptional, including where little time is needed for beneficial resolution and substantial litigation delay is not attributable to the parties. (¶¶ 74, 78, 79)
- The amended minimum-payment protections, their application to pending proceedings and the distribution guidance were constitutionally valid. No vested right to approval prevented application of the changed law. (¶¶ 71, 73, 80, 81, 82, 83)
- Connected claim rulings corrected double counting and misstated admitted amounts, sustained specified late or unproved claim rejections, and restored notional admission of disputed utility and tax claims. Separate pending insolvency merits remained open. (¶¶ 95, 96, 97, 98, 99, 100, 101, 102, 103)
Result
The NCLAT judgment was set aside subject to the specified connected-appeal dispositions and claim corrections. Essar Steel’s resolution was to follow the ArcelorMittal plan of 23 October 2018 as amended and accepted on 27 March 2019. Writ petitions were disposed of on the stated terms. The 2019 distribution amendments were sustained; only the mandatory character of the 330-day deadline was invalidated.