Supreme Court Orders Arbitration in Essar Steel Dispute

In a significant development, the Supreme Court of India has permitted Indian Oil Corporation (IOC) and ArcelorMittal Nippon Steel India Limited (AMNSIL) to initiate arbitral proceedings to resolve their long-standing dispute related to Essar Steel India Limited (ESIL).

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Arbitration Ordered

A bench headed by Chief Justice D Y Chandrachud, which had reserved its judgment on the pleas on February 5, took note of the submissions made by Solicitor General Tushar Mehta, appearing for IOC, and senior advocates Harish Salve and Abhishek Singhvi, representing AMNSIL. Both parties expressed their desire to proceed with arbitration to settle the dispute.

In order to facilitate the arbitration process, the bench directed IOC and ArcelorMittal to nominate two arbitrators within a week. These two arbitrators will then jointly appoint a third arbitrator to complete the arbitration panel.

Arbitrability of Dispute Remains Open

The bench clarified that all contentions raised by the parties, including the arbitrability of the dispute, will remain open for adjudication during the arbitration proceedings.

Background of the Dispute

The dispute between IOC and Essar Steel dates back to 2009 when the two companies entered into a gas supply agreement. However, in 2017, Essar Steel terminated the agreement, prompting IOC to challenge the termination.

As Essar Steel faced insolvency, the corporate insolvency resolution process commenced, and a resolution professional (RP) was appointed. IOC filed a claim of Rs 3,762 crore with the RP, but only a notional amount of Re 1 was admitted to ensure IOC's participation in the insolvency process.

In 2019, ArcelorMittal emerged as the successful bidder to acquire Essar Steel. The resolution plan included IOC's notional claim of Rs 1. However, after the implementation of the resolution plan, IOC issued a notice to ArcelorMittal demanding various amounts totaling Rs 8,772 crore under the terms of the gas supply agreement for the period from 2014 to 2020.

Legal Challenge and Supreme Court's Intervention

ArcelorMittal repudiated IOC's claims, leading IOC to invoke arbitration. Subsequently, IOC approached the Delhi High Court in 2022, seeking the appointment of an arbitrator. However, the high court ruled that the claims could not be addressed by an arbitral tribunal as the approval of the resolution plan had extinguished all claims.

Aggrieved by the high court's decision, IOC appealed to the Supreme Court, which has now paved the way for arbitration between IOC and ArcelorMittal.

The Supreme Court's decision to allow arbitration in the IOC-ArcelorMittal dispute is a significant development that upholds the principles of dispute resolution and contractual obligations. The arbitration process will provide a fair and impartial platform for both parties to present their cases and reach a mutually acceptable resolution.