20 August 2019: The National Company Law Appellate Tribunal (NCLAT) on Monday ruled against operational creditors of Monnet Ispat and Energy, appealing the committee of creditors’ (CoC) decision to award them only Rs 25 crore against claims Rs 444 crore. The company’s operational creditors, including Bharat Petrosources, GAIL India and Bharat Heavy Electrical, had approached the appellate tribunal earlier this year.
A plea filed by Industrial Financial Corporation of India (IFCI), a financial creditor, against treating of its secured loans as unsecured debt was also dismissed by the NCLAT. Monnet Ispat owes IFCI around Rs 158 crore.
Monnet Ispat’s CoC had assigned a nil liquidation value to BHEL’s Rs 15 crore claims, while claims of Bharat Petrosources’ stand at `19 crore.
BHEL contended that though the minimum value to be provided to operational creditors in a resolution plan is the liquidation value due to operational creditors, it cannot be limited only to the liquidation value. “…thus, prescription of liquidation value as minimum amount to be given to operational creditors can in no way be construed to mean that the operational creditors at all times shall be provided with only liquidation value,” BHEL had said in its petition.
The Insolvency and Bankruptcy Code was amended last month to empower the CoC to have the finaly say on the distribution of funds to various classes of creditors. It may be recalled that in the Essar Steel case, the NCLAT had ruled the operational creditors should get a larger share of the proceeds, than had been given to them by the CoC, thereby negating the CoC’s decision.
Under the IBC’s waterfall mechanism, in the event of liquidation, dues to secured financial creditors and workmen’s wages are to be paid fully before payments are made to unsecured financial creditors and operational creditors. The financial creditors of Monnet Ispat & Energy had taken a huge 74% haircut when in July 2018, the Mumbai bench of National Company Law Tribunal approved a `2,875-crore proposal by the AION-JSW Steel consortium. Monnet Ispat owed lenders Rs 11,000 crore while the liquidation value of the distressed steel manufacturer was pegged at Rs 2,365 crore.
Section 30 (2) of the IBC says payments of debts ofoperational creditors should be made in such a manner as specified by the board.
Monnet Ispat is among the major stressed assets from the first list of the Reserve Bank of India (RBI) which were taken up under the resolution process in 2017.