ArcelorMittal made to pay Rs 1,300 cr more as CIRP cost in Essar Steel insolvency case
ArcelorMittal India may have to cough up Rs 1,300 crore more as CIRP cost in the insolvency proceeding of Essar Steel India Ltd after an Ahmedabad bench of the National Company Law Tribunal (NCLT) ordered to steel major to do so.
A petition in this regard was made by Srei Infrastructure Finance, a financial creditor of Odisha Slurry Pipeline Infrastructure Ltd (OSPIL), which in turn was a subsidiary of Essar Steel India. Both Essar Steel and Odisha Slurry Pipeline have been acquired by ArcelorMittal through separate insolvency proceedings.
The NCLT has directed ArcelorMittal to make the payment by 15 December 2020. In its order, the adjudicating authority has said that usage charges for use of slurry pipeline for running Essar Steel during the resolution process are Corporate Insolvency Resolution Process (CIRP) cost, and that the resolution applicant (ArcelorMittal) had contravened the provisions of resolution plan by not paying the said CIRP cost.
Srei Infrastructure had given loans to Odisha Slurry Pipeline to purchase pipeline transferred to it by Essar Steel, and the same was secured by hypothecation of receivables of OSPIL, which included right to usage charges.
Srei Infrastructure has in its petition argued that being the financial creditor of OSPIL, it has an interest in the assets of OSPIL, both pre-insolvency and during the insolvency so that such assets are used for its benefits.
ESIL had created OSPIL as a wholly-owned subsidiary in January 2014 to acquire the former’s pipeline assets (used for transportation of iron ore from its Dabuna, Orrisa, mines to Paradeep Port) as part of a corporate reorganization exercise. ESIL was supposed to pay a usage charge to OSPIL for using the pipeline. Since OSPIL has no independent revenue source at the time of its creation, it borrowed money from financial institutions. Srei Infrstructure Finance also offered term loan of Rs 426 crore to OSPIL at the time of acquisition of the pipeline assets.
Srei Infrastructures Finance argued before the NCLT the use of OSPIL’s pipeline assets was key to ensuring Essar Steel remains a going concern during the CIRP, and that the usage charge amounting to Rs 1,300 crore should have been part of the CIRP cost which was not provided for in the resolution plan.
ArcelorMittal had argued that Srei Infrastructure Finance has no Locus Standi in the matter and that any claim if any had to be filed by the operational creditor (OSPIL) and not Srei. To this the NCLT said that OSPIL had hypothecated such charges to Srei Infrastructure Finance and any payment of CIRP cost will directly benefit the petitioner.
“This benefit completes the link between any person and his interests in payment of the CIRP cost…,” concluded the NCLT.
