NCLT directs ArcelorMitta to pay Rs. 1300 crores to SREI Infrastructure

Synopsis of: NCLT, Ahmedabad Bench, order ArcelorMittal to pay Rs 1300 crores to SREI Infrastructure

Applicant: SREI Infrastructure Finance Limited (SREI)

Respondent: 1. Arcelormittal India Private Limited (AIPL) Successful Resolution Applicant of Essar Steel India Ltd.

2. Sh. Satish Kumar Gupta, RP of Essar Steel India Ltd

3. Arcelormittal Nippon Steel India Ltd (earlier as Essar Steel India Ltd.) (ANSIL)

Brief Fact:

1. SREI filed application u/s 33(4) & (4) read with section 60(5) of IBC, 2016 on the ground that AIPL and ANSIL have contravened the Resolution Plan dated 2.4.18.

2. SREI submit right to use charges payable for use of pipeline of Odisha Slurry Pipeline Infrastructure Ltd. (OSPIL) during CIRP period of Essar Steel India Ltd (ESIL) constitute CIRP Cost.

3. Final Resolution Plan provides for payment of CIRP Cost by AIPL without any cap or limitation.

4. SREI is secured financial creditor of OSPIL and entitled to claim Right to Use (RTU) Charges/CIRP Cost from AIPL independently as per Loan Agreement. Moreover, SREI has interest in the assets of OSPIL both pre insolvency and during insolvency.

Facts pertaining to Insolvency Resolution Process of ESIL:

1. ESIL had benefaction plant at Dabuna in Odisha. ESIL constructed 253 km pipeline (Pipeline Assets) from Dabuna to its Pellestation Plant at Paradeep in Orisha for transporting Iron ore.

2. ESIL formed OSPIL on 17.1.14 as wholly owned subsidiary to transfer the Pipeline Asset to it for business reorganisation. Accordingly Business Transfer Agreement (BTA) entered between ESIL and OSPIL for transfer of Pipeline Asset for consideration of Rs.4,000 Crores.

3. Since OSPIL had no other business or sources of revenue, it was proposed that consideration of Pipeline Asset will be paid through Term loan, Compulsory Convertible Loan and investor’s contribution through equity.

4. In this regard SREI sanctioned compulsory convertible loan aggregating Rs.426 Crores. The Loan agreement entitles the SREI to claim Right To Use Charges (RTU Charges) / CIRP Cost from ANSIL independently under provisions of Loan Agreement. SREI further invested by acquiring 60 lac equity shares of OSPIL through SREI Multiple Assets Investment Trust (SMAIT).

5. It is important to note that OSPIL has always been managed and control by ESIL and has continued to show OSPIL as Associate Company.

6. On 30.3.15 Right to Use Agreement was entered between ESIL and OSPIL, where-under ESIL was allocated 10 MMT capacity of Pipeline Asset and was permitted to use the same on payment of RTU Charges at Rs.600/MT/Monthly (RTU Charges) and OSPIL retained to itself a right to set off the purchase consideration against unpaid RTU Charges.

7. As per Right to Use Agreement, ownership of Pipeline Asset shall all the times remains with OSPIL. Further, ESIL is under unconditional and absolute obligation to pay the Usage Charges and other money under this agreement to OSPIL.

8. On account of failure of to adhere to the payment timelines, an Addendum dated 31.8.15 was entered between ESIL and OSPIL.

9. On 13.1.16, the RBI issued a circular where under the lenders in respect of doubtful assets were required to make provision for the sale and lease back transaction financed by them treating them as an event of restructuring. Upon issuance of such circular, some of the lenders of ESIL and OPSIL decided to unwind the BTA.

10. Accordingly Deed of Cancellation of entered between ESIL and OSPIL for unwinding BTA, RTU and RTU Addendum. However, such deed of cancellation was not approved by the requisite lenders.

11. SREI aggrieved by such cancellation, approach the Civil Court of Sealdah seeking injunction against such cancellation. The civil court did not grant the injunction. Therefore, SREI approached the High Court of Calcutta, who vide order dated 22.12.16 granted interim relief of status quo with respect to alienation and transfer of the Pipeline Assets. The said interim relief is effectively a stay on the deed of cancellation and the pipeline asset is not to be alienated or transferred to ESIL.

12. On 2.8.17, ESIL’s CIRP commenced.

13. During CIRP period, ESIL was using Pipeline Asset for manufacturing activities and to keep it as a going concern. SREI and OSPIL demanded payment of RTU Charges from ESIL RP. Instead of making payment RP took the stand that the title of Pipeline Asset is ‘sub-judice’ and he has approach the Tribunal for declaration of Pipeline Asset’s title in favour of ESIL.

14. During CIRP Period (i.e. from 2.8.17 to 15.11.19), the total RTU Charges / CIRP Cost would be Rs.1013.51 crores without delayed payment charges. With delay payment charges of Rs.295.36 crores, the RTU Charges will come to Rs.1308.87 crores.

15. At the time when CIRP of ESIL was underway, on 28.3.18, IDBI Bank Ltd. filed CP (IB)352/KB of 2018 against OSPIL before NCLT Cuttack Bench. CIRP of OSPIL commenced pursuant to order dated 14.5.19, OSPIL opposed the same by filing reply claiming that the Pipeline Asset is an Asset of ESIL. SREI opposed the said application contending that the Pipeline Asset is an asset of OSPIL and the situation leading to insolvency has arisen due to non-payment of RTU Charges. But the objection of SREI rejected by NCLT Cuttack bench.

16. RP of OSPIL addressed a communication dated 25.5.19 to the Monitoring Committee of ESIL for payment of the RTU Charges. Monitoring committee of ESIL took a stand that since the issue of Pipeline Asset is sub-judice, the payment of RTU Charges does not arise.

17. During the OSPIL CIRP, the RP of OSPIL took a view that SREI cannot become part of the OSPIL CoC, since the SREI was related party of OSPIL by virtue of its shareholding in SMAIT. NCLT Cuttack also accepted such position by order dated 29.11.19.

18. AIPL was one of the Resolution Applicant for OSPIL. It’s Resolution Plan for OSPIL (‘The OSPIL Plan’) was approved by the CoC of OSPIL on 6.12.19. The OSPIL Plan purports to make payment of Rs.2359 crores towards the principal amount of Financial Creditors of OSPIL and includes payment of Rs.501 crores to ANSIL.

19. SREI preferred application no. 194 of 2019 before NCLT Cuttack, seeking direction to OSPIL RP to recover RTU Charges and not to transfer the Pipeline Asset pending decision on the application. Simultaneously, the OSPIL RP filed application no. 188/CBT/2019 (“The Plan Approval Apllication”) before NCLT Cuttack seeking approval of the OSPIL Plan.

20. AIPL filed affidavit dated 10.1.2020 before NCLT Cuttack stating that insofar as RTU Charges are concerned, the current forum having jurisdiction would be this Tribunal (i.e., NCLT Ahmedabad) and the same issue cannot be gone into by the NCLT Cuttack. NCLT Cuttack relying on the affidavit, vide order dated 2.3.2020 disposed of the application preferred by SREI.

21. SREI states that rejection of the prayer of the SREI in the above referred applications has to be seen in the context of the findings regarding RTU Charges being receivables.

22. In the aforesaid facts and circumstances, the present application for necessary directions in respect of payment of RTU Charges / CIRP Cost and in the alternative, a consequential order of liquidation of the ANSIL is preferred by the SREI.

Prayer made by Applicant

• Respondents are jointly and severally liable to make payment of a sum of Rs.1300 crores being the outstanding Usage Charges payable and be further pleased to direct the respondents, jointly and severally, to make such payment to the Resolution Professional of OSPIL; or in the alternative.
• To pass an order of liquidation of ANSIL under section 33(4) of the CODE on account of contravention of the final Resolution Plan by the AIPL; and
• To direct the respondents to deposit a sum of Rs.1300 crores before this Tribunal or in an escrow account; and
• Ex parte ad interim and / or interim in terms of paragraph no. 40(B) be granted; and
• For cost;
• Such other and further relief as may deem fit and expedient be granted.

ORDER/CONCLUSION

1. The usage charges for the use of subject slurry pipeline for running corporate debtor as going concern during CIRP period of the Corporate Debtor are IRP Cost.

2. Such IRP Cost have been duly considered and provided by the Resolution Applicant in the Resolution Plan submitted by the Resolution Applicant and approved by the Adjudicating Authority.

3. The Resolution Applicant (Corporate Debtor) has contravened the provisions of such approved Resolution Plan by not making payment of such IRP Cost.

4. The Resolution Applicant (Corporate Debtor) is directed to make the payment of such IRP Cost to OSPIL by 15.12.2020.

5. In case, our direction at serial no. 4 above is not complied with then the Applicant (SREI) is directed to intimate us regarding the same so that we can pass an appropriate order under section 33(4) of the CODE.

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