India’s top court allows ArcelorMittal, Indian Oil to arbitrate Essar Steel dues

Indian Oil began arbitration with Essar Steel in 2017 to collect gas supply dues. Essar later went bankrupt and was taken over by ArcelorMittal

• Shajil Kumar
• 12 February, 2024

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By: Shajil Kumar

The Supreme Court on Monday permitted Indian Oil Corporation (IOC) and ArcelorMittal Nippon Steel India Limited (AMNSIL) to initiate arbitral proceedings to resolve their dispute relating to Essar Steel India Limited (ESIL).

A bench headed by Chief Justice D Y Chandrachud, which had reserved the judgment on the pleas on February 5, took note of the submissions of Solicitor General Tushar Mehta, appearing for the IOC, and senior advocates Harish Salve and Abhishek Singhvi, representing the AMNSIL, that they wanted to go for arbitration.

Paving the way for arbitration, the bench asked the IOC and the ArcelorMittal to nominate two arbitrators within a week. They will then nominate the third and resolve the dispute.

“The parties have agreed to nominate two arbitrators within a week. The two arbitrators so appointed will nominate the third arbitrator. Because of the agreement of the parties, the Delhi High Court’s judgment dated October 10, 2023 is rendered infructuous,” it said.

The bench said all contentions, including the arbitrability of the dispute, of the parties will remain open for adjudication.

In 2009, the IOC and Essar Steel India Ltd signed a gas supply agreement. The agreement was, however, terminated by Essar Steel in 2017, which was challenged by IOC.

When Essar Steel did not respond to its notice for recovery of its dues, IOC called for arbitration in July 2017. Soon thereafter, Essar Steel went into insolvency and everything was put on hold.

After the corporate insolvency resolution process began and the resolution professional (RP) took over, IOC filed a claim of Rs 37.62 billion with the RP. The RP, however, admitted a notional amount of Re 1 to ensure its participation in the insolvency process.

ArcelorMittal won the bid to take over Essar Steel in 2019. Its resolution plan included the IOC’s notional claim of Rs 1.

Once this resolution plan was implemented, the IOC issued a notice to ArcelorMittal, demanding various amounts totalling Rs 87.72 bn that it said were payable under the terms of the gas supply agreement for the period starting 2014 to 2020.

These claims were repudiated by ArcelorMittal, prompting the IOC to invoke arbitration.

It went to the Delhi High Court in 2022 seeking the appointment of an arbitrator but the court held that the claims cannot be canvassed before an arbitral tribunal as an approval of the resolution plan had resulted in the extinguishment of all claims.

Bringing the dispute before an arbitral tribunal would mean rewriting the terms under which ArcelorMittal took over Essar Steel, which is against the law, the high court had said. (PTI)