The Supreme Court on Thursday said that both ArcelorMittal as well as Numetal Mauritius would have to clear any outstanding dues within two weeks to become eligible to bid for Essar Steel Ltd.
The bids can be resubmitted once the dues are cleared, the two-judge Supreme Court bench headed by Rohinton Nariman said in its order today. The lenders of Essar Steel will choose the best bid in eight weeks after that. If the committee of creditors is unable to complete the process within the timeline set by the apex court, the case would head for liquidation.
The Supreme Court judgement was the outcome of an appeal filed by ArcelorMittal, challenging a decision by the National Company Law Appellate Tribunal last month. In its appeal, the Luxembourg-based steel producer had sought a final decision on its eligibility to bid for Essar Steel and had questioned Numetal’s eligibility to do the same.
On Sept. 7, an NCLAT order had found ArcelorMittal ineligible to participate in the bidding process for Essar unless it cleared the Rs 7,000-crore loan defaults by Uttam Galva Ltd. and KSS Petron Ltd.
“It’s a vindication of the stand taken by the committee of creditors and one must give credit to the fact that they have stuck to their guns on this one because ultimately the Supreme Court has validated what their initial position was,” said Suharsh Sinha of AZB & Partners.
ArcelorMittal held a 29 percent stake and was a co-promoter in Uttam Galva, a non-performing asset as classified by its lenders, which the company sold before bidding for Essar Steel. It also holds considerable stake in KSS Global, the parent company of KSS Petron, also a loan defaulter. Under Section 29A of the Insolvency and Bankruptcy Code, 2016, promoters of companies that have been classified as non-performing assets for over a year cannot participate in the resolution process of any company unless the dues are repaid.
For Numetal, however, the appellate tribunal had noted that since it had managed to alter its shareholding by buying out the stake held by a Ruia family member it was eligible to participate in the bidding process. The Ruia family is the promoter of Essar Group companies.
Around the same time, ArcelorMittal sent a letter to creditors of Essar Steel, offering up to Rs 42,000 crore in cash to buy the company. Thereafter Numetal, that bid Rs 37,000 crore, asked the Supreme Court for the chance to match ArcelorMittal’s bid.
Anil Agarwal’s Vedanta Group has also submitted a bid for Essar Steel. The value of the bid, however, is unknown. Essar Steel’s financial creditors have claims worth over Rs 49,000 crore.
The Essar Steel insolvency proceedings were initiated in Aug. 2017 and have seen considerable delays owing to litigation by both the bidders.
Numetal and Lakshmi Mittal’s ArcelorMittal had first submitted resolution plans in February, after lenders to Essar Steel had sought bids. Later, the Committee of Creditors had disqualified both bids as it felt that they were ineligible under Section 29A of the Insolvency and Bankruptcy Code.
Following this, the lenders had called for a second round of bidding. While both bidders submitted revised bids, they also approached the Ahmedabad bench of the National Company Law Tribunal challenging the disqualification.
The NCLT did not give any relief to the bidders. However, it did ask the committee of creditors to take another look at the bids before disqualifying them. The order came after the tribunal was informed that the lenders did not review the plans themselves, but depended on the assessment of the resolution professional and his lawyer. The NCLT had also asked the committee of creditors to give the bidders 30 days to cure any default that may disqualify them under Section 29A.
BloombergQuint later reported that ArcelorMittal had offered to repay any outstanding loans owed by Uttam Galva Steels Ltd., where it held promoter stake. The steelmaker had placed Rs 7,000 crore in an escrow account, with the condition that lenders disqualify Numetal’s bid.
On its part, Numetal offered to take out Rewant Ruia from the company’s shareholding, as he is part of the promoter family that owns Essar Steel. Ruia is a direct beneficiary of a trust that holds minority stake in Numetal. Later, the bidder from Mauritius restructured the shareholding of its India arm, getting in JSW Steel Ltd. to buy stake and offer technical know-how on managing a steel plant.
While they submitted revised bids, both bidders had also approached the NCLAT challenging the NCLT order and even each other's eligibility.
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