Essar Steel: NCLAT Says Numetal’s Second Bid Eligible; Gives ArcelorMittal Till Sept. 11 To Clear Dues

The National Company Law Appellate Tribunal today ruled that Numetal's second bid for Essar Steel Ltd. qualified and that ArcelorMittal can bid for the steelmaker if it clears the dues of its subsidiaries.

The two-member NCLAT bench gave ArcelorMittal till Sept. 11 to clear the dues. It would need to clear pending dues for Uttam Galva and KSS Petron, which add up to about Rs 7,000 crore, said a person familiar with the matter.

In the case of Russia’s VTB Capital-backed Numetal, the appellate tribunal ruled that the reworked bid, submitted on March 29 after restructuring the shareholding of its India arm, is eligible. This second bid had eliminated the shareholding held by a trust in which Rewant Ruia was a beneficiary. Instead, JSW Steel Ltd. had joined the consortium.

Anil Agarwal-led Vedanta Group had also participated in the bidding process when lenders called for bids in the second round.

The Story So Far

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 CoC 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 CoC to give the bidders a time period of 30 days to cure any default that may disqualify them under Section 29A.

Later, BloombergQuint 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.

How Close Is Resolution?

Essar Steel had been admitted for insolvency by the Ahmedabad bench of the NCLT in August 2017.

Since then, the case has seen multiple delays. In April, the NCLT had removed the two months spent in litigation from the 270 day resolution period, thereby extending the process. Later, the NCLAT, too, said that the time spent in liquidation may not be considered in the maximum time allowed for resolution under IBC.

Under the code, if a case is not resolved within 270 days, it should move to liquidation.

Now, the CoC will open the second round of bids which have been kept sealed so far. However, it is unclear whether the committee has the leeway to ask the bidders to revise their bids again or invite fresh bids.

The clock on the resolution process for Essar Steel will also begin again unless any of the parties chooses to appeal today’s NCLAT decision.

Watch the discussion with Trilegal's Sitesh Mukherjee and DSK Legal's Anand Desai.