The closely watched battle for control of the beleaguered Essar Steel under the new bankruptcy law saw high drama with Numetal Mauritius and ArcelorMittal, the two main bidders, seeking each other’s disqualification before the Ahmedabad bench of NCLT.
The closely watched battle for control of the beleaguered Essar Steel under the new bankruptcy law saw high drama on Wednesday with Numetal Mauritius and ArcelorMittal, the two main bidders, seeking each other’s disqualification before the Ahmedabad bench of National Company Law Tribunal (NCLT). ArcelorMittal and Numetal have challenged the legitimacy of each other for participation in the second round of bidding, held on April 2, while contesting their disqualification in the first round of bidding by the interim resolution professional appointed by the committee of creditors (CoC) of Essar Steel. The NCLT bench on Wednesday heard multiple petitions and counter affidavits filed by Numetal and ArcelorMital. On behalf of Numetal, senior counsel Mukul Rohatgi told the tribunal that though the interim resolution professional had disqualified ArcelorMittal from round one of biding there were stronger grounds to disqualify them from further participating in the bidding process. He said that according to Section 29(A) of the Insolvency and Bankruptcy Code, ArcelorMittal could only participate in the bidding for Essar Steel after the promoters have paid debt in companies like Uttam Galva, which has a debt of around Rs 6,000 crore, where insolvency proceedings have been initiated. And while ArcelorMittal has sold its stake in Uttam Galva, it has not paid the debt. “They (ArcelorMittal promoters) did not pay debt when they bid for round one and they have not cleared it even in round two bidding. As per the bankruptcy code, if a bidder is a promoter/stakeholder/director of an NPA company, his bid will stand disqualified unless the bidder clears the debt,” Rohatgi told the tribunal.
In the case of Numetal, one of the promoters of the special purpose vehicle (SPV), Rewant Ruia, son of Ravi Ruia, is one of the original promoters of Essar Steel and this had led to disqualification of Numetal in round one. Rewant Ruia is beneficiary of a trust that backed Aurora Enterprises which in turn held about 25% stake in Numetal during round one of bidding for Essar Steel. VTB is the largest shareholder with about 40% stake. He said that promoters of ArcelorMittal had in the past held close to 32% in KazStroyService (KSS), a company based in Kazakhstan that held 100% stake in KSS Petron, which became a non-performing asset (NPA) in 2015. He went on to add, “This stake was sold by the promoters on February 9, 2018 in an attempt to disconnect from such NPA assets. But here too, the debt hasn’t been paid off by them.” On its part, in a counter affidavit filed before the tribunal, ArcelorMital has said that Numetal is ineligible despite the changes in shareholding. Ravi and Rewant Ruia, by virtue of being father and son, are deemed to be “persons acting in concert”, it claimed. ArcelorMittal, represented by Abhishek Manu Singhvi as legal counsel, said that the company had sold its stake in Uttam Galva KazStroyService before the cut-off date for submitting the bids and hence there was no issue regarding their eligibility. He said that ArcelorMittal would pay off the debts in question once they emerge winners for Essar Steel. He claimed that the original expression of interest submitted for Essar Steel by Numetal consisted mainly of Aurora Enterprises and Essar Communications as the stakeholders. Singhvi also said that the Rs 500 crore earnest money deposited by Numetal during initial bidding round was from Aurora Enterprises. According to Singhvi, “The contention that Aurora Enterprises is merely a passive investor in Numetal is also clearly a device, sham and a façade. This is evident from the manner in which Numetal and Aurora Enterprises were incorporated on the same date in Mauritius for the purpose of submission of a resolution plan in respect of the corporate debtor and further from the fact that the entire earnest money deposit of `500 crore was funded by AEL and not by the other shareholders/constituents of Numetal.”
He stated that the request for proposal (RFP) conditions require that permission of the committee of creditors be obtained for any change in the composition of the bidding consortium, particularly when there is an accompanying change in control. ArcelorMittal alleged that this was not done in the case of Numetal, especially when VTB came in as the largest shareholder. “Numetal is a body corporate and not a consortium. Hence, individuals cannot be taken into account unless they have management control. In this case, Rewant is not in control of Numetal and is only one of the shareholders of the entity,” legal counsel Janak Dwarkadas appearing on behalf of Numetal stated. Total debt of Essar Steel stands to Rs52,572 crore of which Rs49,230 was financially admitted debt and Rs 3,357 is operational debt, according to Ravi Kadam, legal counsel for CoC. Essar Steel runs a crude steel capacity of 10 million tonnes per annum at Hazira in Gujarat. The April 2 round of bidding saw participation from ArcelorMittal Netherlands NV-Nippon Steel and Sumitomo Metal Corporation (NSSMC) duo, Vedanta Plc and JSW Steel Ltd joining hands with Numetal Mauritius. The matter is now scheduled for further hearing on April 5.