NCLT faults RP, CoC for ‘not following due procedures’; holds inviting second round of bids ‘invalid’
The Ahmedabad bench of the National Company Law Tribunal (NCLT) on Thursday asked the committee of creditors (CoC) to reconsider the bids of ArcelorMittal and Numetal for Essar Steel made in the first round. The two competing bidders had also participated in the second round with Numetal teaming up with JSW Steel. The bench comprising judges Manorama Kumari and HP Chaturvedi admonished the CoC and resolution professional (RP) Satish Kumar Gupta for not following due procedures by not providing “sufficient chances” to both the resolution applicants. It observed that inviting a second round of bids was “prima facie invalid” and directed the CoC and RP to revisit their decision to reject the earlier bids under Section 29A.
Legal experts also noted that given the Insolvency and Bankruptcy Code (IBC) was in its early days, the bench should have been less harsh with the RP and the CoC. The CoC is understood to have disqualified ArcelorMittal and Numetal as it believed they were not eligible as per Section 29 A of the IBC, which bars defaulting promoters from bidding for assets at the NCLT.
As has been reported, ArcelorMittal was a promoter in Uttam Galva Steels, which has defaulted on its loans. Numetal’s bid was held to be ineligible since one of the persons associated with the company, Rewant Ruia, is related to the promoters of Essar Steel. The shareholders of Numetal include Russia’s VTB Bank and engineering firm TyazhPromExport, financial investor Aurora Enterprises (in which Ruia has an interest) and commodity trading company Indo International Trading.
To make itself eligible to bid for Essar Steel, ArcelorMittal is believed to have infused close to Rs 3,000 crore in Uttam Galva to help it settle its dues. VTB Bank, the promoter of Numetal, has also since declared its intent to buy out the stake of Aurora Enterprises to dissociate itself from Ruia. The RP and his advisers, too, had been unable to reach a decision on the bids received from ArcelorMittal and Numetal. Consultancy firm Grant Thornton and law firm Cyril Amarchand Mangaldas are believed to have been the two advisers to the RP on this matter.
Legal experts said the tribunal’s order gives ArcelorMittal and Numetal an opportunity to rectify their bids, if required, to address any deficiencies. They believe that this leaves the door open for changes and the participation of entities such as JSW Steel which had teamed up with Numetal in the second round.
The NCLT’s order paves the way for the resumption of the resolution process under the IBC. It also granted an additional 30 days beyond the 270-day deadline for resolution, which expires on April 29, by excluding the time lost since filing the application to the verdict. ArcelorMittal said on Thursday it had always maintained it was eligible to bid for Essar Steel and was pleased to see the NCLT wanted its offer to be presented to the CoC. “We had made a strong and competitive offer backed up by a detailed industrial plan and now hope for a swift resolution for Essar Steel,” the company said.
Numetal said, “We welcome the order pronounced by NCLT Ahmedabad by returning the matter back to CoC for considering our original bid. We have put forth a very compelling resolution plan both industrially and financially. We hope our proposal will be considered by the CoC with a fair and holistic view.” Essar Steel is among the 12 companies that the Reserve Bank of India had asked banks to refer to the bankruptcy court. Essar Steel, which has a steel-making capacity of 9.7 million tonnes per annum, owes close to Rs 50,000 crore to lenders.