Lakshmi Mittal can begin taking over Essar Steel as India's Supreme Court ends the debate on how to distribute the money
Nov 15, 2019, 13:18 IST
- Steel tycoon Lakshmi Mittal wins his $6 billion bid for bankrupt Essar Steel owned by the Ruia family earlier.
- The latest Supreme Court verdict has set a precedent on how the sale proceeds of a bankrupt company should be distributed.
- The ultimate discretion on distribution of funds was with the Committee of creditors, the SC order on November 15 said.
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- The Supreme Court has also allowed the bankruptcy Court to extend the 330-day deadline to resolve insolvency cases.
The ultimate discretion on distribution of funds was with the Committee of creditors, the SC order on November 15 said. The case had landed up at the Supreme Court because the appellate tribunal of the bankruptcy court had held that the funds from the sale of a bankrupt company should be equally distributed between both financial creditors i.e. banks and operational creditors (suppliers, vendors etc.) who are owed money by the insolvent company.
The Supreme Court has set aside that order and given banks the power to decide how to distribute the money. It also added that the banks should also balance the interests of all stakeholders.
This order has led to a rally in state-owned banking stocks due to two reasons. Firstly, those who have lent money to Essar Steel will get to recover a larger share from the money received from Lakshmi Mittal's ArcelorMittal. Secondly, this order sets a precedent for other bankruptcy cases.
Essar Steel owes about ₹49,000 crore to a dozen banks including the State Bank of India (SBI), whose share price surged over 5% after the order.
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A slowing Indian economy is clouding over ArcelorMittal's $6 billion bid for Essar Steel