MCA defends IBC provision on personal insolvency in Anil Ambani case

 The Ministry of Corporate Affairs has defended the Insolvency and Bankruptcy Code's provision for invoking personal guarantees of corporate debtors in the matter of Reliance Group’s Anil Ambani in the Delhi High Court.

A senior MCA official said, “A notice was issued, so we have to file a response. The ministry has to defend its law. The law is perfect and there is nothing wrong with it.”

MCA is engaging with the law ministry to present the government's side of the argument. The senior official also said that the government is studying the petition filed by Ambani that challenges the constitutional validity of the law.

In August this year, Ambani had appealed against State Bank of India’s petition invoking his personal guarantee. The Supreme Court had rejected SBI’s pleas and directed the High Court to hear Ambani’s challenge to the government’s Insolvency Resolution Process Regulations 2019 for Personal Guarantors to Corporate Debtors.

Ambani guaranteed loans worth about $160 million to his two telecommunication companies.

The matter has become a test case for the new IBC rules on personal guarantors introduced in November last year by the Insolvency and Bankruptcy Board of India.

Another senior official said that the rules for insolvency of personal guarantors to corporate debtors were brought in as part of the phased introduction of individual insolvency.

The official said that one of the reasons behind the introduction of these rules for personal guarantors was that the matter could be heard in the National Company Law Tribunal if a company was already undergoing the corporate insolvency resolution process. “It was a practical decision since these cases could be dealt by the National Company Law Tribunal if the company in question was also undergoing corporate insolvency resolution. We also wanted to provide a level playing field to the corporate guarantor and the personal guarantor.”

For all other individual insolvencies, the matter will be heard at the debt recovery tribunal.

While the provisions of initiating corporate insolvency resolution are suspended till December, lenders are allowed to invoke insolvency of personal guarantors to corporate debtors.

Apart from Ambani, the SBI had also sent a notice to Sanjay Singhal, promoter of Bhushan Power & Steel, invoking his personal guarantee. No decision has been taken in the matter yet.

Essar Steel clocks in highest ever production at 6.8 million tonnes

Essar Steel, which is on the cusp of a resolution under the Insolvency and Bankruptcy Code (IBC), has recorded its best ever production at 6.8 million tonnes, an improvement of 10 per cent over the previous year and around 24 per cent in 2016-17.

At the end of March 2019, Essar's production stood at 6.78 million tonnes compared to 6.18 million tonnes in 2017-18 and 5.47 million tonnes in 2016-17.

The corporate insolvency resolution process (CIRP) for Essar, one of the largest Reserve Bank of India- mandated resolutions, started in August 2017. J Mehra, who stepped down as the chief executive officer of Essar Steel at the end of March, said that the steel production and the production of downstream units were at an all-time high.

Essar recorded an 80 per cent capacity utilisation in downstream units and a substantial increase in production of value added products comprising galvanising, colour coated products and pipes. Mehra also appreciated the performance of the pellet facility which recorded a production of over 10 million tonnes and operated at rated capacity in March 2019.

Resolution professional, Satish Kumar Gupta, who is now chairman of the monitoring committee that has taken charge of Essar, confirmed the production numbers and said, the performance of Essar was possible on account of support from the financial creditors and the management. "It also establishes the plant capability," he said.

A monitoring committee with representatives from lenders and ArcelorMittal as per an order from the National Company Law Appellate Tribunal (NCLAT) has taken charge of Essar Steel. Resolution professional, Satish Kumar Gupta, is the chairman of the monitoring committee.

Sources said, Essar's performance was despite withdrawal of funding lines by MSTC to the tune of Rs 700 crore. MSTC used to provide funding lines for import.

At the time of stepping down, Mehra was satisfied with the performance of the company, which provides a strong platform for further growth.

Essar has been selling more or less what it produced as it had not received any additional funding support. Favourable market conditions, therefore, helped the company.

Senior vice president ICRA, Jayanta Roy, pointed out that prices of hot rolled coil (HRC) had touched a low of about Rs 28,000 a tonne at the end of FY16 and then moved up to around Rs 46,000 in Q1FY19. After dipping in Q3 to Rs 38,000 it is now hovering at around Rs 42,000 a tonne.

Essar Steel has a steel making capacity of close to 10 million tonnes which is supported by a 20 million tonne pellet-making capability. However, sources pointed out that the capacity could not be achieved as it required additional funding.

ArcelorMittal's resolution plan for Essar Steel includes a capital expenditure plan of Rs 18,697 crore to take the finished steel goods capacity of the plant to 8.5 million tonnes by 2024. The long-term aspiration was to increase finished steel shipments between 12 and 15 million tonnes through the addition of new iron and steel-making assets.