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Essar House Private Limited vs Arcellor Mittal Nippon Steel India Limited

SLP(C) · 2022 INSC 957Decided 14 Sept 2022
SLP(C) No. 3187 of 2021
Indira Banerjee · A.S. Bopanna

Background

Essar Steel had paid security deposits to two group companies: Essar House Private (under a rental/business-centre agreement for office space) and Essar Services (under a support-services agreement). After Essar Steel went through insolvency resolution and Arcellor Mittal Nippon Steel India Limited took it over as the successful resolution applicant, Arcellor sought refund of these security deposits. Essar House and Essar Services resisted, claiming the deposits had already been adjusted/diverted, through internal group arrangements, to pay off other creditors of Essar Steel. The Bombay High Court (Single Bench and then Division Bench) directed both companies to deposit the disputed amounts (about Rs. 35.5 crore and Rs. 47.4 crore respectively) with the Court to secure Arcellor's arbitration claim, and both companies appealed.

Decision Breakdown

The Supreme Court held that under Section 9 of the Arbitration Act, courts have wide, largely equitable powers to secure a claim pending arbitration and are not rigidly bound by the technical requirements of Order 38 Rule 5 CPC (which governs attachment before judgment in ordinary civil suits). It found the group companies' claimed set-offs/adjustments were unsubstantiated by documents and, in any event, such novation or set-off of Essar Steel's dues without the consent of the Resolution Professional was not permissible during the moratorium under the Insolvency and Bankruptcy Code. Since Arcellor had a strong prima facie case and the balance of convenience favoured securing the claim, the Court upheld the High Court's orders directing deposit/bank guarantee and dismissed both appeals.

Lesson Learnt

Once a company enters insolvency resolution, its group companies cannot unilaterally adjust or divert refundable deposits/dues owed to it to settle other group obligations without the Resolution Professional's consent; and courts have broad, equity-driven power under Section 9 of the Arbitration Act to secure a strong claim even without strictly satisfying CPC attachment rules.

Official source (sci.gov.in)View Judgment (PDF)

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