Vol 17 (2020) - Issue 1

Article preview

Essar Steel India Limited: Supreme Court Reinforces Primacy of Creditors Committee in Insolvency Resolution

Synopsis

The Essar Steel judgment of the National Company Law Appellate Tribunal (NCLAT), which required that the secured financial creditors share recoveries in a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC), inter se (irrespective of the ranking of their security positions) and with the trade creditors, on a pari passu basis, was described as leading to a 'confusion in the treatment of different types of creditors' and a setback for the nascent but growing secondary debt market in India. The judgment was perhaps also opposed to the realities of credit risk assessments and pricing of the credit leading to an unsatisfactory resolution outcome for creditors in an insolvency situation.
In a landmark judgment on 15 November 2019, a three-judge bench of the Indian Supreme Court in Essar Steel set aside most of the NCLAT’s judgment and has given much needed clarity to the stakeholders. Some of the key principles laid down by the Hon’ble Supreme Court and their implications on the current insolvency regime are dealt with below.