Why did NCLT decline Essar’s settlement plea?

The NCLT earlier this week rejected a plea to settle dues with lenders and withdraw insolvency proceedings against Essar Steel. The application was filed by majority shareholders of Essar Steel, against the Resolution Professional and the Committee of Creditors (CoC)..Essar Steel has been under Corporate Insolvency Resolution Process (CIRP) since August 2017, and has traversed the judicial chain of appeal multiple times now. Out of the three resolution applicants for Essar Steel, two of them (ArcelorMittal and Numetal) were initially found to be ineligible under Section 29A. After the matter reached the Supreme Court, both parties were granted time to settle their dues to make themselves eligible resolution applicants..Soon after the Supreme Court passed its verdict in the Essar Steel case requiring resolution applicant to clear dues, Essar Steel Asia Holdings Ltd, Essar Steel’s holding company, proposed a settlement plan by which the entire debt of Essar Steel, Rs. 54, 389 crores would be paid off..Section 12A of the IBC permits withdrawal of a case under CIRP post-admission, but it also requires 90% CoC approval, and Regulation 30A of the CIRP Regulations requires that such a withdrawal can only be done before issuance of Expression of Interest. In the case of Essar Steel, neither of the qualifications were satisfied. The CoC declined the settlement proposal and selected ArcelorMittal’s resolution plan. However, the applicants took support of Section 12A of the IBC for making their case, arguing that the IBC through Section 12A does envisage a situation wherein shareholders are allowed to settle..In the alternative, the applicants argued that their right of redemption under Section 91 of the Transfer or Property Act would apply. They further argued that the right to redemption of property, is a constitutional right and cannot be taken away by a legislation. On the limited point of right to redemption, the NCLT found that this constitutional right, contained in Article 300A, is not an absolute one and can be taken away by the means of a legislation. Accordingly, it found Section 238 of the IBC, which is a non-obstante clause, to be overriding..As far as the settlement pleading is concerned, the NCLT noted that the present application flows from the Supreme Court ruling which required both parties to clear their dues to become eligible. It then relied on the Supreme Court ruling and recent NCLAT decision to say that its jurisdiction to entertain this application is limited by the Supreme Court ruling. The Supreme Court also recorded that, if neither of the resolution plan is able to muster the requisite majority, Essar Steel will go into liquidation. This is the limitation within which the NCLT was working- that the Supreme Court restricted its jurisdiction to determining the resolution plans. Since a proposal for settlement is a new application which is outside the scope of the Supreme Court’s ruling, the NCLT found that it does not have jurisdiction to entertain such an application. It also took a moral dab at the applicants by recording that,.“Moreover, the present applicants did not choose to file such application previously either before this Adjudicating Authority or before the Honourable NCLAT and the Honourable Supreme Court by making Intervention Application by showing their bona fide intention for settling the matter , which could have been dealt with at that point of time by this Adjudicating Authority or by higher forum”.And with this, it rejected the applicants plea to settle their dues and pull Essar Steel out of the CIRP. But of course, appeals are expected..(Read the order)