Revised plan bypasses CoC: Supreme Court flags material irregularity in direct presentation to Adjudicating Authority

On 3 May 2023, Supreme Court of India, in its recent judgement in "Committee of Creditors of Essar Steel India Limited through Authorized Signatory vs. Satish Kumar Gupta & Ors." has upheld the disapproval of a resolution plan submitted by ArcelorMittal India Ltd for the debt-ridden Essar Steel, citing various reasons including ineligibility of the resolution applicant, and directed the reconsideration of a settlement offer by the promoter. The revised plan was directly presented to the Adjudicating Authority without presenting it to the CoC. This amounts to a deviation in the process and cannot be ignored or condoned. The approval of the plan without the final approval of the CoC amounts to a material irregularity.

The Court examined various aspects of the case, including the valuation process, non-compliance with procedural requirements, eligibility of the resolution applicant, treatment of related parties, settlement offers of the promoter, and subsequent events. The Court's decision and directions can be summarized as follows:

Disapproval of the resolution plan: The Court upheld the NCLAT's disapproval of the resolution plan due to the ineligibility of the resolution applicant and the failure to present the revised plan to the Committee of Creditors (CoC) for approval before seeking approval from the Adjudicating Authority.

Rejected findings of NCLAT: The Court set aside certain findings of the NCLAT related to the valuation process, non-compliance with procedural provisions, and increase in the fees of the resolution professional, as they were not considered material to the process.

Eligibility of the resolution applicant: The Court disagreed with the NCLAT's finding that the resolution applicant was ineligible under Section 164(2)(b) of the Companies Act, 2013, and held that the provision was not applicable in this case.

Treatment of related parties: The Court rejected the NCLAT's application of non-discrimination principles to the treatment of related parties in the resolution plan. It held that the provision of payment to related parties in the plan was subject to the commercial wisdom of the CoC and not a mandatory requirement.

Settlement offers of the promoter: The Court disagreed with the NCLAT's finding that the settlement offer of the promoter was not considered by the CoC. It held that the settlement proposal was properly considered and rejected by the CoC, and the process was not suffering from any illegality.The Court left open the consideration of the fresh settlement proposal of the promoter, approved by the CoC, for the Adjudicating Authority to examine. It directed the Adjudicating Authority to consider all relevant aspects, including the justification for invoking Section 12-A after the fresh invitation for Expressions of Interest (EOIs) and the receipt of resolution plans.

"Committee of Creditors of Essar Steel India Limited through Authorized Signatory vs. Satish Kumar Gupta & Ors

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