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Deal Destination 

Market for Stressed Assets: Truly

‘Stressed’ or Disguised ‘Desserts’ Spelt

Backwards?

August 2018

© Copyright 2018 Nishith Desai Associates

Supreme Court ruling in ArcelorMittal case — An analysis

By Mitali Daryani

The Supreme Court on 4-10-2018 allowed yet another opportunity to mining major ArcelorMittal and Russia's VT B Capital-backed NuMetal to bid for Essar Steel provided they clear their Non-Performing Asset (NPA) dues in two weeks. The bench comprising Justice R. F. Nariman and Justice Indu Malhotra, has also taken this opportunity to interpret and clarify Section 29A of the Insolvency and Bankruptcy Code, 2016. However, the Essar saga is far from over.

Background:

The Hon’ble Calcutta High Court on February 2, 2018, upheld the validity of Section 7, 8 and 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘IBC 2016’ or ‘the Code’) in the case of Akshay Jhunjhunwala & anr. v. Union of India[1].

Introduction

A bench of Supreme Court comprising of Justice R.F. Nariman and Justice Sanjay Kishen Kaul in the case of M.D. Frozen Foods Exports Pvt. Ltd. And Ors. Vs Hero Fincorp Ltd., in Civil Appeal No. 15147 of 2017 dealt with the issue that whether an NBFC is entitled to initiate proceedings under SARFAESI Act and arbitration proceedings, simultaneously, with respect to a loan account.

It is known that I & B Code came into effect from 01.12.2016.  Subsequently, it perspired during various proceedings in NCLT that it has no specific provision for limitation period and/or categorical applicability of Limitation Act on initiation of insolvency process under the Act.

However, the limitation period is prescribed under the Limitation Act for every suit instituted, appeal preferred, and application made under the law.

National Company Law Appellate Tribunal has held that ‘Moratorium’ under Section 14 of the Insolvency and Bankruptcy Code will not only be applicable to the property of the ‘Corporate Debtor’ but also on its ‘Personal Guarantor’.

Brief Facts:

In order to protect honest creditors against the unscrupulous debtors who are using insolvency as a shield to evade of their liabilities, the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) was incorporated. The IBC works in pursuit of insolvency resolution process in a time-bound manner for maximization of value of assets which promotes entrepreneurship, availability of credit and balance the interests of all the stakeholders.

On 5 May 2017, a day after the recent Banking Regulation (Amendment) Ordinance, 2017 (Ordinance) received Presidential assent, the Reserve Bank of India (RBI) issued a circular on ‘Timelines for Stressed Assets Resolution’ (Circular). The Circular amends the existing “Framework for Revitalising Distressed Assets in the Economy – Guidelines on JLF and CAP” dated 26 February 2014 (JLF Framework) and mandates members of a joint lenders forum (JLF) to follow strict timelines in implementing the corrective action plan (CAP) or suffer penal consequences for non-compliance.

In its first detailed ruling on some of the substantive legal questions under the Insolvency and Bankruptcy Code, 2016 (Code), the Hon’ble Supreme Court (Apex Court) has delivered a landmark order in the matter of Innoventive Industries Ltd v ICICI Bank and Another with an expressly avowed objective of ensuring that all the courts and tribunals across the country take notice of a ‘paradigm shift in the law’ ushered in by the Code.

Brief Background