Essar Steel Dues: Supreme Court Allows ArcelorMittal Nippon Steel, Indian Oil To Arbitrate

The Supreme Court allowed ArcelorMittal Nippon Steel India and Indian Oil Corp. on Monday to arbitrate a dispute pertaining to Essar Steel India Ltd.

Since the top court had already reserved its ruling on this last week, the lawyers had asked it not to pass a judgement as they had agreed to arbitrate the dispute.

A three-judge bench, led by Chief Justice of India DY Chandrachud, has allowed the arbitration and asked both the parties to appoint arbitrators within a week.

All rights and contentions of the parties, including the question of arbitrability, will be kept open for the arbitral tribunal to decide, it said.

As a result, the top court has set aside the Delhi High Court judgment which had set aside IOCL's demand to refer the matter to arbitration.

The dispute pertains to a Rs 8,772-crore claim against ArcelorMittal. The claim was originally filed against Essar Steel, which was taken over by ArcelorMittal through an insolvency resolution process in 2019.

In 2009, IOC and ArcelorMittal Nippon Steel, formerly known as Essar Steel India Ltd., signed a gas supply agreement. However, the agreement was terminated by ArcelorMittal Nippon Steel in 2017.

The IOC disagreed with the termination, and when Essar Steel did not respond to the IOC's notice for recovery of its dues, the oil major was prompted to call 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 took over, IOC filed a claim of Rs 3,762 crore with the RP. However, the RP apprised the IOC that its claim was being admitted for a notional amount of Re 1 to ensure its participation in the insolvency process.

ArcelorMittal's resolution plan was given the go-ahead by the top court in 2019. This 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 totaling Rs 8,772 crore that it said were payable in terms of the gas supply agreement between 2014 and 2020. These claims were repudiated by ArcelorMittal, prompting the IOC to invoke arbitration.

When IOC approached the Delhi High Court in 2022 for the appointment of an arbitrator, 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 that IOC may have had against Essar.

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.