In a recent twist of events in the case of Essar Steel’s bankruptcy proceedings, Ahmedabad bench of NCLT (National Company Law Tribunal) has declared the invitation for the company’s second round of bidding as invalid. Announcing its decision on Thursday, the bench has asked the lenders and RP (Resolution Professional) of bankrupt Essar Steel to reconsider the first bids submitted by Arcelor Mittal and Numetal on 12 Feb’18.
The Ahmedabad bench of NCLT observed that the “The RP and CoC’s decision to hold the second round of bids may sound prudent but is not legally sound. The RP and CoC are directed to reconsider their decision (of disqualifying Numetal and ArcelorMittal).”
As per the market reports, while sending the first bids once again to the CoC and the RP, the NCLT said certain provisions as mentioned in section 29(a)(1) and in the sub-section 4 of section 30 of the IBC were not followed while disqualifying the first bids. The Bench has exempted the time duration which went into litigation at challenging the disqualifications of the two bidders and has extended the deadline with equal days.
What has happened in the past?
The first bids submitted by Numetal and Arcelor Mittal were rejected by the CoC (Committee of Creditors) and RP citing ineligibility on technical grounds. Essar Steel’s CoC had disqualified ArcelorMittal’s bid stating that the company continued to be a promoter of the defaulter Uttam Galva Steels on the stock exchanges, whereas Numetal’s bid was rejected because defaulting company Essar Steel’s promoter family member Rewant Ruia, along with an offshore trust, was holding 25% shares in Numetal. The Section 29A act of IBC (Indian Bankruptcy Code) bars promoters and related party of defaulting companies from bidding for stressed assets.
Numetal and ArcelorMittal had moved to the NCLT over their disqualification in the first round of bidding claiming that rules had been followed before submitting their bids.
Following this, the NCLT allowed rebid till April 2. In the second round of bidding, ArcelorMittal along with Nippon of Japan, Anil Agarwal’s Vedanta and Numetal along with JSW Steel have put in their bids. The NCLT directive is seen as an ouster of Anil Agarwal-promoted Vedanta and JSW, which partnered with Numetal in a step-down subsidiary, Nu Metal & Steel Pvt. Ltd.
A welcome move for Arcelor Mittal and Numetal
This verdict has once again given opportunity to both the original bidders ArcelorMittal and Numetal. This is because Arcelor Mittal had been waiting to enter Indian steel market in a meaningful manner since long as its India exposure was limited with a minority stake in India based Uttam Galva which has also been declared as the non-performing asset last year.
On the other hand Numetal had been trying to gain a foothold in Indian market by steadily expanding local production in India and targeting sectors that were beneficial to company’s superior technology and was also looking out for opportunities to engage in steel production to capture the increasing domestic steel demand in India amid its growing infrastructure.
Essar Steel has an integrated steel plant with a capacity of 10 MnT in Gujarat. While the company manufactures flat steel products, plates, and pipes that were sold through its own domestic channels, in terms of raw material it also owns an iron ore mine in the eastern part of India.
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