The National Company Law Appellate Tribunal (NCLAT) Friday ruled that Russia’s VTB Capital-backed NuMetal’s second bid for Essar Steel is eligible but the same by ArcelorMittal will qualify only if it clears the Rs 7,000 crore dues of firms it was previously associated within three days.
NuMetal and steel tycoon Lakshmi Mittal-led ArcelorMittal had in February submitted separate bids to takeover Essar Steel, which lenders were auctioning to recover their Rs 49,000 crore defaulted loans. The Committee of Creditors (CoC), however, disqualified both bids saying their promoters were tied to companies which were bank loan defaulters and so ineligible under Section 29A of the Insolvency and Bankruptcy Code.
The second round of bids was called where JSW Steel joined NuMetal to put in a bid of Rs 37,000 crore while Vedanta Ltd entered the fray as a third bidder. ArcelorMittal too put in a bid.
A two-member bench of NCLAT headed by Chairman Justice S J 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 Tribunal ordered the committee of Essar Steel creditors to get the highest value including by negotiating with eligible bidders expeditiously.
Both NuMetal and Essar Steel had challenged disqualification of the first round of bids in the Ahmedabad-bench of the National Company Law Tribunal (NCLT) which did not give any relief to the bidders but has asked the CoC to take another look at the bids before disqualifying them.
The NCLT order was challenged by both the bidders in NCLAT. After the NCLT order, ArcelorMittal had offered to repay any outstanding loans owed by Uttam Galva Steels Ltd, where it held promoter stake, and KSS Petron. The steelmaker had placed Rs 7,000 crore in an escrow account, with the condition that lenders disqualify Numetal’s bid.
On its part, Numetal offered to take out Rewant Ruia, sicon of Essar Steel’s promoter Ruia family, from the company’s shareholding. JSW Steel Ltd replaced Rewant Ruia on NuMetal and brought to table technical know-how on managing a steel plant.
The two-member NCLAT bench also comprising of Justice Bansi Lal Bhat, directed lenders of the Essar Steel to expeditiously take a decision on the bids.
It held that NuMetal was not related to promoters of Essar Steel and so was eligible for submitting a resolution plan for the company.
“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 bench further said: “ArcelorMittal is allowed to make payment within three working days, that is by September 11.”
The NCLAT grants more time for resolution period by deducting the litigation period of April 26 to September 7 from the 270-day period.
“CoC (committee of creditors) would place the approved the adjudicating authority which will expeditiously decide on it,” the bench said adding the winner would deposit upfront payment immediately.
The NCLAT also said that lenders are allowed to further negotiate bids for Essar and decide expeditiously.
After the NCLAT order, CoC is likely to open the second round of bids submitted by NuMetal and Vedanta. ArcelorMittal’s bid would be opened if it cures ineligibility.
Commenting on the judgment, NuMetal spokesperson said: “This 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.”
ArcelorMittal, in its plea before the NCLAT, had challenged its disqualification on grounds that it had exited Uttam Galva before submitting a bid for Essar Steel on February 12.
Numetal was disqualified in the first round on ground that Rewant Ruia, son of Essar Steel promoter Ravi Ruia, is a beneficiary of a trust that backed Aurora Enterprises, which in turn held a 25 per cent stake in Numetal. VTB is the largest investor with a 40 per cent stake.