In the latest update in case of Essar Steel’s insolvency case, the highest authority Supreme Court (SC) has allowed both the bidders, ArcelorMittal and Numetal to submit their revised resolution plans subject to clearance of outstanding dues within two weeks.
The two companies will be required to submit their resolution plans within eight weeks post clearance of their dues in two weeks.
At present, while Numetal is free from all the dues, ArcelorMittal has to clear INR 7,000 crore dues of Uttam Galva and KSS Petron for its bid to be eligible for Essar Steel.
As per the SC verdict, the new resolution plans that will be submitted by the two bidders would be considered by the majority (66%) of the committee of creditors (CoC) and if they do not come to a conclusion, then Essar Steel Ltd would go into liquidation.
This decision is on similar lines to what NCLAT (National Company Law Appellate Tribunal) has ruled earlier (on 7 Sep’18) that NuMetal’s second bid for Essar Steel was eligible, but the same by ArcelorMittal would qualify only if it cleared the INR 7,000 crore dues of the two firms it was previously associated with.
Post the NCLAT’S ruling, ArcelorMittal had challenged the order asking it to pay INR 7,000 crore to become eligible for the bidding, whereas NuMetal had alleged that NCLAT had “wrongly” applied legal provisions to enable its rival bidder to pay the dues of two debt-ridden firms even after it had bid for Essar Steel.
In its verdict, SC has diluted the role of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) and said that they would step in only after resolution plans were approved by a CoC majority.
The story so far
Numetal and ArcelorMittal had in Feb’18 submitted separate bids to takeover Essar Steel. The CoC, however, disqualified both bids, saying their promoters were tied to companies, which were bank loan defaulters, and hence they were ineligible under Section 29A of the Insolvency and Bankruptcy Code.
While Numetal was disqualified on the grounds that Rewant Ruia, son of Essar Steel promoter Ravi Ruia, is a beneficiary of a trust that backed Aurora Enterprises, which held 25% in Numetal, Arcelor Mittal had its stake in defaulting two companies, Uttam Galva and KSS Petron.
Both Numetal and Essar Steel had challenged disqualification of the first round of bids in the Ahmedabad bench of the NCLT, which did not give any relief to bidders but asked the CoC to take another look at bids before disqualifying them. The committee of creditors had sought a second round of bidding by 2 Apr’18. In the second round, JSW Steel joined Numetal to put in a bid of INR 37,000 crore, while Vedanta Ltd entered the fray as a third bidder. ArcelorMittal India, too, put in a bid.
The NCLT order was then challenged by both bidders in the NCLAT. After the NCLT order, ArcelorMittal India 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 INR 7,000 crore in an escrow account, with the condition that lenders disqualify Numetal’s bid.
Subsequently, on 7 Sep’18, NCLAT in its ruling asked the lenders to consider the second round of bids with a condition that Arcelor Mittal should clear its dues within three days (i.e. by 11 Sep’18) first to become eligible.
This case was then further taken to Supreme Court by Numetal where it challenged the time given by the National Company Law Appellate Tribunal (NCLAT) to ArcelorMittal for payment of dues on account of defaulting firms — Uttam Galva Steels and KSS Petron. Numetal’s plea was based on the ground that there is no provision under the Insolvency and Bankruptcy Code (IBC), which allows three days’ time to clear dues to become a qualified bidder.
Essar Steel, a flagship company of Ruia’s family, is one of the dozen companies against which RBI (Reserve Bank of India) had initiated bankruptcy proceedings last year in Jun’17. According to data published on company’s website, Essar Steel owes INR 49,212 crores to 34 banks, financial institutions, trusts, and other corporate entities, INR 2,581 crore to the creditors, and INR 18 crores to the employees. The company has an integrated steel plant with a capacity of 10 MnT in Gujarat.
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