Essar Steel CoC defends lower pay out to Standard Chartered Bank

The Committee of Creditors of Essar Steel on Tuesday defended lower pay out to Standard Chartered Bank (StanChart) despite it being a secured financial creditor, reasoning that its security was different and lower from other lenders of the debt-laden steel maker.

Challenging the National Company Law Appellate Tribunal’s (NCLAT) decision allowing higher payout to Operational Creditors (OCs), the CoC told the Supreme Court (SC) that there had to be difference between the money distributed as the OC would continue to be working with the new resolution applicant which takes over.

The submissions by CoC came during the hearing on a bunch of pleas challenging the NCLAT approval of ArcelorMittal’s plan for Essar Steel, the higher payout to OCs and StanChart, as well as other petition by OCs challenging the amendments made to the Insolvency and Bankruptcy Code. The court will continue hearing the case on Wednesday.

The CoC has challenged higher payout to StanChart and OCs, which have opposed the latest IBC amendments giving preference to financial creditors over operational ones. Other changes made to the IBC, such as the extension of the corporate insolvency resolution period to 330 days from 270 days, have also been challenged before the court.

During a hearing in August, the SC had observed that if the law allowed banks to decide that while they would take haircuts, they could give nothing to the operational creditor, “it was bad law”.

“If this is not addressed even in the amendments, it is a major lacuna. The amendments, instead of addressing the issue, aggravate it,” the court had then said. The financial creditors to Essar Steel had then tried to justify the latest amendments made to the IBC by claiming that the difference between them and the OCs was that they were secured lenders as opposed to the latter. The court had, however, observed that as there was “no monopoly” of any operational creditor, it was possible that a new management could switch to another service provider instead of the old one.

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