CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors. [Civil Appeal No. 8766-67 OF 2019]

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Facts of CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors.

Essar Steel India Limited is a carbon steel manufacturer company from iron ore to end-products. After 2010 the company started suffering losses and due to which, it had to borrow loans of crores of rupees from the public as well as private banks.

By 2015, the company was submerged in a financial loan of Rs. 54 thousand crores of both financial and operational creditors. The company was unable to pay back the loan and hence declared itself insolvent under the Insolvency and Bankruptcy Code before the National Company Law Tribunal in 2017.

Reserve Bank of India identified the company as one of the 12 companies whose non-performing assets are significantly affecting the banking system of India. Banks that incurred huge losses like State Bank of India and Standard Chartered Bank filed a petition in the National Company Law Appellate Tribunal (NCLAT), Ahmedabad Bench against the Essar Steel company.

Since the company was declared insolvent, NCLAT suggested to sale of the company, and the bid was won by ArcelorMittal for Rs. 48 thousand crores.

Issues Involved in CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors.

  • Financial creditors contradict the judgement made by the NCLAT of equal distribution of the funds amongst the financial and operational creditors, as financial creditors had more amount in their name as compared to the operational creditors.
  • The Committee of Creditors (CoC), which was basically a committee of the financial creditors and was led by SBI had the highest amount of debt, filed the petition in the Supreme Court against the judgment made by the NCLAT.
  • Whether the Insolvency and Bankruptcy Code (Amendment Act), 2019 is constitutionally valid or not?

Arguments raised in CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors.

Initially, the decision taken by the NCLT was to relinquish the operational creditors of an amount more than Rs. 1 crore, as suggested by ArcelorMittal and approved by the CoC. Along with that, CoC was also advised to share 15% of the recovered amount with the operational creditors of Essar Steel Limited made during the Company Insolvency Resolution Process (CIRP). Although, the judgment was challenged and was taken before the NCLAT.

The NCLAT held that the distribution of the recovered amount should be equal between the financial and operational creditors. NCLAT also made a judgment that all the financial creditors will be paid in 60.7% of the claimant amount, the operational creditors with a claimant amount of or above Rs. 1 crore will be paid n 60.26% of the claimant amount and those with are below Rs. 1 crore will be paid in full. Discontent with the decision made by the NCLAT, the financial creditors challenged the decision before the Supreme Court.

Judgment in CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors.

Later on, when the financial creditors appealed the same judgement in the Supreme Court, the apex court overruled the NCLAT’s judgment in July 2019. In the said judgment, the apex court stated that the company is taken over by ArcelorMittal and the CoC will have the upper hand in the fund given by them.

The Supreme Court also held that NCLT and NCLAT cannot interfere in any commercial decisions and matters tackled by the CoC.

Moreover, the apex court held that first consideration should be given to the financial creditors rather than the operational creditors because the financial creditors give the capital to the firms and get collateral in return whereas, the operational creditors are the unsecured lenders without being backed by the collateral security.

The time limit of 330 days for the resolution would also not be considered and creditors would not be pressurised in order to collect the below-par amount. The apex court also held a judgment in the favour of the bank that the bank could recover about 90% of the debt in order to improve its financial position.

According to the analysis of the Supreme Court, both Resolution Applicants are ineligible to submit resolution plans since their earlier plans violated Section 29A of the Insolvency and Bankruptcy Code, 2016. Section 29A of the IBC, 2016 has enshrined all the persons who will not be considered eligible for resolution applicant.

However, in an exercise of its exceptional authority under Article 142 of the Constitution of India, the Supreme Court of India gave the Resolution Applicants fourteen days after the Supreme Court’s order to settle their Non-Performing Assets (NPA) account debts.

Article 142 of the Indian Constitution gives the Supreme Court the discretionary power to exercise its authority to pass an order or decree which proves to be necessary for complete justice in any case or matter pending before the Supreme Court.


The Supreme Court’s judgment resolved many questions regarding financial creditors and operational creditors.

The Constitutional validity of the IBC, 2016 was upheld by the Supreme Court by mandating a minimum of 100 home buyers to come together and file an insolvency application petition before the NCLT.

Based on its interpretation and appraisal of the IBC, the Supreme Court has established the rule that, in order to assist a resolution plan, the 270-day time limit for litigations involving stays due to any substantive problem in the Corporate Insolvency Resolution Process should be deleted. No other matters, even those involving concerns of procedure, are excluded from this deadline.

Once the issue with Essar Steel is resolved, a lot of firms currently at risk will receive significant assistance in their efforts to recover. In addition, it grants the NCLT and NCLAT board authority to investigate matters brought under the IBC outside the limitations of the underlying law and the financial claims at stake.

When exercising their judicial authority, these institutions should consider the impact of their decisions on the company’s creditors, stakeholders, promoters, and anybody else whose interests depend on the company’s ability to recover.


This judgement will establish a precedent for similar instances involving firms in the process of declaring bankruptcy and awaiting a ruling on how to divide funds equally among their various categories of creditors.

This article has been authored by Suhani Gandhi, a student at the School of Law, Narsee Moonjee Institute of Management Studies, Bengaluru.

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