The National Company Law Appellate Tribunal (NCLAT) on Friday ruled that Russia’s VTB Capital-backed Numetal’s second bid for bankrupt Essar Steel is eligible but gave a conditional clearance to Lakshmi Mittal-led ArcelorMittal’s bid. Only if the company cleared `7,000 crore of dues of firms (Uttam Galva and KSS Petron ) it was previously associated with by September 11, will it qualify to bid.
A two-member bench of the NCLAT headed by chairman Justice SJ Mukhopadhaya ruled that the first-round bids were not eligible but NuMetal’s second bid submitted on March 29 after restructuring the shareholding was eligible. It asked ArcelorMittal to clear dues of Uttam Galva Steel and KSS Petron by September 11 for its bid to be considered eligible.
The appellate tribunal also ordered Essar Steel’s committee of creditors to get the highest value by negotiating with eligible bidders expeditiously. “An early decision should be taken by the committee of creditors and on approval of the resolution plan, the resolution professional will place the same immediately before the adjudicating authority who in its turn will pass order. The successful resolution applicant will take steps for execution of its resolution plan and deposit the upfront money,” the appellate tribunal said in its 69-page order.
Numetal and ArcelorMittal had filed petitions in the NCLAT challenging the disqualification of their first round of bids by the committee of creditors, saying their promoters were tied to companies which were bank loan defaulters and so ineligible under Section 29A of the Insolvency and Bankruptcy Code.
Both the companies had put in bids in the second round after their offers in the first round were seen as invalid. Numetal faced disqualification as its 25% stake was owned by Aurora Trust of the Ruia family, the promoters of Essar Steel, while ArcelorMittal’s first bid was rejected because of it holding shares in loan-defaulting companies Uttam Galva Steel and KSS Petron.
For the second round of bids, VTB Bank severed ties with the Ruia family by buying out Aurora Trust’s stake in Numetal. On its part, ArcelorMittal transferred Rs 7,000 crore to an escrow account of SBI to clear outstanding loans of Uttam Galva and KSS Petron.
“The amount has not been deposited with the financial creditors,” the NCLAT order said. “ArcelorMittal had made a conditional deposit of Rs 7,000 crore in its own current account (escrow account). Such depositation of the amount in its own escrow account does not qualify as a payment of overdue amounts. A conditional offer to pay the over dues amount cannot be accepted till it is complied in the light of proviso to clause (c) of Section 29A unconditionally”.
In the second round of biddng, Anil Agarwal’s Vedanta Resources also joined the race and JSW Steel joined Numetal for the bid.
Essar Steel’s resolution professional, Satish Kumar Gupta, told FE that a meeting of the CoC will be convened next week where the second round of bids will be opened. All three bidders would also be called in to make presentations where they will be asked to improve their bids without changing the basic parameters of bidding.
“As of March 29, Numetal was not a shareholder in one of the related parties, hence the stigma of Section 29A of the IBC goes. Numetal is eligible and section 29A as of March 29, 2018, does not apply,” the bench said. However, in the case of ArcelorMittal, it held that the company was connected to Uttam Galva and KSS Petron, which are classified by many banks as NPA. “The stigma would continue till the payment of all charges by ArcelorMittal,” it said.
The NCLAT granted more time for the resolution period by deducting the litigation period of April 26 to September 7 from the 270-day period.
“We are in the process of reviewing the order issued by the NCLAT, after which we will determine our next steps,” ArcelorMittal said in a statement on Friday. On its part, a Numetal spokesperson said: “The order vindicates NuMetal’s conviction that they are an eligible bidder and has given a compelling offer to the creditors for the Essar Steel’s resolution plan under IBC. Numetal welcomes the judgment of the NCLAT bench and reiterates its faith in the judicial system of the country.”
Financial creditors have claimed close to Rs 49,000 crore from Essar Steel.
In the second round of bids, ArcelorMittal is understood to have made an upfront offer of Rs 30,500 crore and pledged another Rs 8,000 crore in the form of capital infusion into Essar Steel, while Numetal’s bid amount was at Rs 37,000 crore.