Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta & Ors. (8 SCC 531)

seo835
Aug 19
7 min read

Introduction

On November 15, 2019, a three-judge bench of the Supreme Court of India delivered its landmark verdict in the case of Committee of Creditors of Essar Steels India Limited v/s Satish Kumar Gupta and Ors, regarding the acquisition of Essar Steel Company under the Insolvency and Bankruptcy Code,2016. In this case, the proceedings regarding the acquisition of Essar Steel under the IBC went on for more than two years and laid down the answers to several questions arising from the newly introduced legislation and framework of the Insolvency and Bankruptcy Code,2016.[1] The judgement sets aside most of the NCLAT’s judgement and gave much more clarity to the confusion between the different types of creditors.

Brief Overview

On October 4, 2018, the SC in the case of ArcelorMittal Pvt Ltd vs Satish Kumar Gupta declared that the companies ArcelorMittal and Numetal Ltd are not eligible u/s 29-A of the IBC. However, by invoking Article 142 of the Indian Constitution, the SC granted them two weeks to pay off the Non-Performing Assets (NPAs) of the related corporate debtors. If they fail, they will ultimately go into liquidation.

On October 18, 2018, ArcelorMittal informed regarding the payment off all the NPAs of the corporate debtors as per the given order of the court, but Numetal didn’t comply. On the very following day, ArcelorMittal resubmitted its resolution plan, which was evaluated by the CoC.

On October 25, 2018, the Committee of Creditors approved the resolution plan of ArcelorMittal and declared the company as the highest stakeholder of a majority of 92% vis-à-vis Vedanta. On March 8, 2019, after conducting several proceedings before NCLT, NCLAT gave its final verdict to allow the resolution plan and dispose of any further applications.

Facts of the Case

Essar Steel Company is a leading carbon steel manufacturer company worldwide. After 2010, they suffered a continuous huge loss, due to which they borrowed multiple loans of crores from different banks. By 2015, the company took a financial loan of 25 crores but was unable to repay and therefore, declared itself insolvent.

Later on, the RBI listed out 12 companies whose NPAs were adversely affecting the system of banking in India. Essar Steel was among one of the listed companies. Some Banks like the State Bank of India and Standard Chartered Bank incurred huge and due to this, they filed a case against the company at the NCLAT, Ahmedabad branch. As the company declared Insolvent, the NCLAT suggested to the sale, and ArcelorMittal emerged as the highest bidder holding a 92% stake at Rs 48 thousand crores.

Parties Involved

Committee of Creditors of Essar Steel India Limited (plaintiff)

Satish Kumar Gupta and Others (defendants)

Procedural History

NCLT admits the insolvency application, and resolution plans are filed by Arcelor Mittal and Numetal. The case proceeded through multiple hearings in front of NCLT and NCLAT, respectively, and ultimately landed at the Supreme Court's doorstep.

Legal Issues

Issue Statements

Were ArcelorMittal and Numetal eligible as resolution applicants under section 29-A of the IBC?
Is the Insolvency and Bankruptcy Code (Amendment Act) of 2019 constitutionally valid?

Significance

These debates were pivotal in determining to ensure and maintaining transparency and just fairness, and reasonableness for the process of insolvency. The case also plays a crucial role in setting up a precedent for future cases related to the Insolvency and Bankruptcy Code.

Court Verdict

Holding

The Supreme Court held that initially, neither ArcelorMittal nor Numetal came under the purview of Section 29-A, but rather permitted them to cure ineligibility, whereby by paying off related corporate debtors' NPAs within two weeks of the judgment of the Tribunal, they again submitted and the CoC approved it.
The apex court held that the amendment to the act is constitutionally valid.[2] The court also held out that any legislation or any amendment can not violate the fundamental right or any act that will go against the public interest.

Explanation

According to the Court, the IBC needed to be amended to eliminate practical implementation issues and guarantee that the insolvency resolution process wasn't unduly prolonged. The Court further stated that the 66% majority requirement was a fair and reasonable way to guarantee that the resolution process could proceed without being impeded by creditors who disagreed.

Majority Opinion

Justice R.F. Nariman, making his mature opinions stated that there must be an effectiveness during the procedures of Insolvency. He maintained that ArcelorMittal qualified because it paid off its non-performing assets.

Whereas, Justice Bhat supported the opinion of Justice RF Nariman by emphasizing the constitutional validity IBC(Amendment) Act, 2019.[3] He further stated that there is a need for effective and transparent procedures throughout the insolvency resolution process.

Statutes and Precedents

Key Statutes

Insolvency and Bankruptcy Code, 2016[4]: Section 12(3) provided the mandatory completion of the insolvency process within 330 days, and Section 30 provides that the legislature must be given free play to join regarding economic legislation. Sections 30(2) & (4) deal with the resolution plan and section 61(3)- Findings of facts, r/w sections 30(4), 31(1) approved resolution plan and 60(5)- scope of judicial review of the decision of Adjudicating Authority or Tribunals. Section 13(1)-(b)(c), 15(1), 18(1)-(b)&(c), 20, 22(1)&(2), 23(1), 25(1),(2)(e) to (i), Sec. 29 & 30- Role of resolution professionals in revival of the corporate debtor. Sections 30, 31 and 32 provide the quantum of claims and errors in the computation of claims. Section 31 provided the liberty to pursue proceedings pending before the NCLT.
Insolvency and Bankruptcy Board of India Regulations, 2016 – the role of a prospective resolution applicant, its rights and obligations.

Constitution of India[5]: Article 14 and Article 19(1)(g), Article 142 in order to provide the eligibility by allowing ArcelorMittal and Numetal to liquidate their NPAs.

Previous Cases

Swiss Ribbons v. Union of India (2017)[6]: The judgment of this case upholds the constitutional validity of statutes by providing clarity for balancing the roles and responsibilities of Resolution Professionals and considers them as exercising administrative functions and subject to judicial supervision under Section 60(5) of the Code by the NCLT[7].
Innoventive Industries Limited v. ICICI Bank Limited (2018)[8]: This case made a clear statement regarding the proper functioning of the Committee of Creditors and the way of procedure how a resolution plan to be approved.
State Bank of India v. V. Ramakrishnan (2018)[9]In this case, the Hon’ble Supreme Court of India held that Section 31(1) of the Code makes it clear that once a resolution plan is approved by the CoC, it shall be binding on all stakeholders, including guarantors.[10]

Impact of the Case

Legal Precedent

This landmark case set one of the most important roles in order of providing substantiality to the decision of the Committee of Creditors and also upholded that if any decision is taken, must always adhere to the basic principles of justice, equity, fairness and good conscience. In addition to this, the judgement also ruled out and set the precedent regarding the wider interpretation of section 29-A given under IBC, more specifically in relation to selecting the criteria of eligibility for the applicants of the resolution.

Overall, the judgement emphasised reinforcing the powers of the Committee of Creditors, by ensuring transparency and maintaining just, fair and reasonable decision-making processes. Moreover, the judgement highlights how to ensure transparency and also maintain good and fair decisions during the resolution process in order to balance out the interests among stakeholders.

Social and Political Impact

The decision increased the attention of the public and legal interest of Corporate debtors and other corporate debtors by involving them in solving the complex issues and questions that arise out of matters related to IBC cases. Such a landmark case positively impacts in order to reinforce the effectiveness and credibility, especially during policy-making frameworks related to Insolvency cases.

Critical Analysis

The decision of the court in this case in a way highlighted the deep complexities and uncertainties regarding the knowledge of the insolvency matters. The ruling attempted to make a compromise between the legislative preamble of the IBC and the speedy resolution procedure. The judicial decision tries to preserve the ineligibility of both ArcelorMittal and Numetal as a judicial motive, along with maintaining fairness throughout the proceedings.

Strengths

The recognition of the CoC, Corporate and other companies’ stakeholders promotes the pragmatic challenges by invoking and widening the scope of Article 142 of the Indian Constitution. The decision also reinforced the maintenance of transparency, credibility and fairness during insolvency matters related to proceedings.

Weaknesses

The wider use of Article 142 could undermine the consistency of the policy-making rules and frameworks and could also further lead to frequent judicial disputes. One of the major drawbacks is that putting the financial creditors over the operational creditors severely raises concerns regarding the equity, justice and fairness regarding the allocation of the funds. Such a decision would create a type of environment where strong financial groups can manipulate and adversely impact the resolution process making.

Summary

The case of Essar Steel raised that question most acutely in regard to upholding the eligibility criteria of ArcelorMittal by preserving the ineligibilities and further approving the resolution plan. However, the judgement was upheld and given clarity regarding the objective of the IBC is to ensure fairness, justice, and equity and also to keep transparency throughout the proceedings related to insolvency matters.

Final thoughts

As a result, the judgement has undoubtedly established a landmark precedent for future cases of similar matters regarding the distribution of funds, striking down any enactment that will hamper a balance among the company's creditors by maintaining fairness and efficiency throughout the insolvency procedures.

Author: Apnatva, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

[1] Sethi, R., & Agarwal, A. (2021, April 15). Case Note: Judgement Of The Supreme Court In The Essar Steel Case. Mondaq. Retrieved May 12, 2025, from

https://www.mondaq.com/india/insolvencybankruptcy/1058270/case-note-judgement-of-the-supreme-court-in-the-essar-steel-case

[2] (2023, August 3). Summary of landmark judgment of Supreme Court in Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta & Ors., in Insolvency and Bankruptcy Code, 2016. IBC Laws. Retrieved May 16, 2025, from https://ibclaw.in/summary-of-landmark-judgment-of-supreme-court-in-committee-of-creditors-of-essar-steel-india-limited-vs-satish-kumar-gupta-ors-under-ibc/

[3] Vaish Associates Advocates (2019, December 27). Supreme Court: Constitutional validity of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 upheld. Vaishlaw. Retrieved May 18, 2025, from https://www.vaishlaw.com/supreme-court-constitutional-validity-of-the-insolvency-and-bankruptcy-code-amendment-act-2019-upheld/mar-gupta-ors-under-ibc/

[4] The Insolvency and Bankruptcy Code, 2016. India Code. Retrieved May 19, 2025, from https://www.indiacode.nic.in/handle/123456789/2154#:~:text=An%20Act%20to%20consolidate%20and,the%20interests%20of%20all%20the

[5] GOVERNMENT OF INDIA MINISTRY OF LAW AND JUSTICE LEGISLATIVE DEPARTMENT, OFFICIAL LANGUAGES WING (2024, May 1). THE CONSTITUTION OF INDIA. India Code. Retrieved May 19, 2025, from https://cdnbbsr.s3waas.gov.in/s380537a945c7aaa788ccfcdf1b99b5d8f/uploads/2024/07/20240716890312078.pdf

[6] 2019 INSC 95 Swiss Ribbons Pvt. Ltd. and Ors. vs. Union of India (UOI) and Ors. (25.01.2019 - SC) : MANU/SC/0079/2019

[7] L. V., & C. D. T. (2019, February 5). Swiss Ribbons v. Union of India – The Foundation for Modern Bankruptcy Law. India Corporate Law. Retrieved May 20, 2025, from https://corporate.cyrilamarchandblogs.com/2019/02/swiss-ribbons-v-union-india-foundation-modern-bankruptcy-law/

[8] 2017 INSC 837 Innoventive Industries Ltd. vs. ICICI Bank and Ors. (31.08.2017 - SC) : MANU/SC/1063/2017

[9] 2018 INSC 711 State Bank of India vs. V. Ramakrishnan and Ors. (14.08.2018 - SC) : MANU/SC/0849/2018

[10] (2023, August 3). Summary of landmark judgment of Supreme Court in Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta & Ors., in Insolvency and Bankruptcy Code, 2016. IBC Laws. Retrieved May 16, 2025, from https://ibclaw.in/summary-of-landmark-judgment-of-supreme-court-in-committee-of-creditors-of-essar-steel-india-limited-vs-satish-kumar-gupta-ors-under-ibc/