Whether defaulting promoters should be given a chance to buy back their companies—at a huge discount—in the insolvency process, at the National Company Law Tribunal (NCLT), has always been contentious. Indeed, when finance minister Arun Jaitley brought in a change in the law to say this would be allowed as long as these defaulting promoters made their loans ‘standard’—so, if for instance, they had defaulted for over a year, the amount of money that they had failed to pay would have to be given to the banks first—former SBI chairman Arundhati Bhattacharya said that, if the defaulters could now find the money to repay banks, they were clearly ‘wilful defaulters’, and ‘wilful defaulters’ were not allowed to bid under the Insolvency and Bankruptcy Code (IBC) Bill.
Despite the government allowing defaulting promoters a way out to participate in auctions, few promoters chose to use this route. So, in the case of the bid for Essar Steel, ArcelorMittal chose to bid even though it was a promoter of Uttam Galva that owed the banks money—ArcelorMittal argued that while it was true that it was classified as a promoter, it had never held a board/managerial position in Uttam Galva or exercised any of the rights that went along with this. The other bidder, Numetal Mauritius, also chose not to make any repayments despite the fact that Rewant Ruia, the son of one of the promoters of Essar Steel, was associated with the company.
The Committee of Creditors (CoC), however, rejected both bids on grounds that Section 29A did not allow them to bid unless they had paid their dues, and called for a new bid. While both Numetal and ArcelorMittal challenged this decision at the NCLT in Ahmedabad, the lenders called for a second round of bidding—while ArcelorMittal continued to hold it did not have to pay Uttam Galva’s debt and bid again, Numetal was said to have dumped Rewant Ruia for JSW Steel.
The case then had a twist since NCLT ordered that the CoC reconsider the bids in the first round and, on Tuesday, ArcelorMittal deposited Rs 7,000 crore in an escrow account of State Bank of India, supposedly with the condition that it be declared an eligible bidder. It is not clear if there are more conditions—ArcelorMittal, for instance, would probably want Numetal’s first bid to be considered as a result of which it too would have to pay the creditors first; more importantly, this would ensure that JSW doesn’t get to participate in the bidding. While Arcelor Mittal depositing the dues can be considered the first victory of IBC Section 29A, what happens to Numetal remains to be seen.
When Numetal’s first bid was rejected, the Resolution Professional (RP) had said that Numetal was incorporated only for the purposes of bidding for Essar Steel and, at that point, its entire shareholding belonged to Aurora Enterprises which, in turn, was owned by Aurora Holdings that, in turn, was owned by Rewant Ruia through a trust and another holding company. According to the RP, VTB Bank of Russia—which is a part-owner of Numetal—was sold a stake later. In other words, it is still too early to say whether Section 29A is working, but a beginning has been made with ArcelorMittal.