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Essar Steel case order: Here's what experts say

SC said the two set of creditors will be treated differently during the insolvency proceedings and taking over of a debt-ridden firm by another company.

ETMarkets.com|
Updated: Nov 15, 2019, 10.30 PM IST
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NCLAT's Essar Steel ruling set aside: Everything you need to know
NCLAT's Essar Steel ruling set aside: Everything you need to know
The Supreme Court Friday set aside a NCLAT order which gave equal rights to the secured and unsecured creditors during the insolvency proceedings of debt-ridden Essar Steel, clearing the decks for its takeover by Lakshmi Mittal-led ArcelorMittal, PTI reported.

Setting aside the National Company Law Appellate Tribunal (NCLAT) order, a 3-judge bench headed by Justice R F Nariman, said the two set of creditors will be treated differently during the insolvency proceedings and taking over of a debt-ridden firm by another company.

There is no principal of equality between secured and unsecured creditors, said the bench, also comprising Justices Surya Kant and V Ramasubramanian.

Here’s how experts reacted to the Supreme Court’s verdict:


The framework strikes a good balance with initiation of resolution to be led by the regulator including appointment of an administrator and leaving the resolution to the approval of Committee of Creditors with suitable measures for engagement with the regulators for their approval in a timely manner on aspects that require their approval. The Advisory Committee envisaged under the Rules could also play a useful role.

This interim framework is a constructive development for resolution of financial service firms. It is a unique model where the regulator, the creditors and the Adjudicating Authority (NCLT) have clearly defined roles to play, possibly the first of its kind.”

Makarand Joshi, Partner, MMJC and Associates
Operational creditors will have to find ways and means to secure their payments against supplies made to companies as following today’s judgement they will not be considered at par with financial creditors like banks. This landmark judgement, which in a way has given its approval to amendment made to IBC, will bring a paradigm shift in the way operational creditors now deal with companies for their supplies in the eventuality of default to secure their interest.

Shrikant Chouhan, Senior Vice-President, Kotak Securities
Nifty PSU Bank index did extremely well and it closed up over 3.50% after Supreme Court sets aside NCLAT judgement giving the upper hand to banks. The court has held that it is the bank's decision to maximize the value of the corporate debtor and added that CoC should balance the interests of all the stakeholders. It would smoothen the process of recovery and such type of clarity from lawmakers would help banks to do their business (lending and borrowing) more aggressively in the long run. It seems long term investors and contra investors must have taken strong buy call on all telecom companies after these companies made heavy provisions in their Q2 numbers for spectrum usage charges and towards licenses fees.
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