Given it has been more than a year since Essar Steel was first admitted for insolvency by the Ahmedabad bench of the NCLT, and the process is still not over—despite an NCLAT verdict last week on the eligibility of bidders—it is clear matters are not proceeding as smoothly as was envisaged when the government first started the new insolvency process for defaulter firms. Indeed, some variant or the other of the Essar Steel-kind of delays is being played out in several other cases as well, making it clear the issue is a serious one.
In the initial bidding round for Essar Steel, one of the bidders was Numetal whose shareholders included a trust in which Rewant Ruia was a beneficial owner; the other bidder was ArcelorMittal. Both bids were declared ineligible by the Committee of Creditors (CoC) since, under Section 29A of the Insolvency and Bankruptcy Code (IBC), defaulting firms were not allowed to bid unless they make good the default. Since Rewant Ruia was a member of the Ruia family, Numetal being declared ineligible was obvious; in the case of ArcelorMittal, it was ineligible since it was a promoter of Uttam Galva which owed the banks `7,000 crore. Both parties appealed this decision at the NCLT—and later, NCLAT—but no final decision was taken; instead, the bidding process was allowed to go on.
In the next round, Numetal dropped Ruia and took on JSW instead, and ArcelorMittal offered to pay the Uttam Galva dues, but with some caveats; to demonstrate its sincerity, it placed Rs 7,000 crore in an escrow account. This is what the NCLAT ruled on last week—it said that while Numetal’s second bid, with JSW, was eligible, ArcelorMittal would have to pay the dues of Uttam Galva in order to remain eligible. Reportedly, ArcelorMittal plans to challenge this in the Supreme Court—apparently, on grounds that if Numetal could become eligible by simply dumping Rewant Ruia, it should be eligible anyway as it had sold its shares in Uttam Galva.
While the Supreme Court will, undoubtedly, take a call on this, since a decision is not taken on time, the issue gets a lot more complicated. After the CoC had declared both bids ineligible, for instance, the legal challenges should have been dealt with first. Only then should Numetal and ArcelorMittal been allowed to proceed to the second round, after having fixed those parts of their bids—Rewant Ruia and the Uttam Galva dues, respectively—that were considered the problem. If this is not done for all other cases, they too will continue to get delayed, so there is a valuable lesson here for all those involved in the IBC process.