Going by the observation made by the Ahmedabad bench of National Company Law Tribunal (NCLT) in its order on Numetal India and ArcelorMittal India case, the latter would not be eligible for acquiring Essar Steel just by selling its stake in Uttam Galva Steel and KSS Petron. ArcelorMittal India, whose resolution plan has been found ineligible under Section 29A of the Insolvency and Bankruptcy Code (IBC), holds a stake in Uttam Galva and KSS Petron.

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It has offloaded its stake in Uttam Galva to meet the eligibility criteria to participate in Essar Steel’s resolution proceeding under IBC. The tribunal has observed that ArcelorMittal would have to pay off all its dues in both the companies to qualify for Essar Steel bidding.

“.. in accordance with the guidelines of the Reserve Bank of India, a plain reading of clause(c) of Section 29A as well Section 30(4) second proviso clearly says that the applicant would become eligible only after paying the overdue amount to the lenders in both cases of KSS Petron and Uttam Galva Steels Ltd before being eligible to bid and the resolution applicant shall be allowed by the Committee of Creditors (CoC) such period not exceeding thirty days,” states the order.

The bench said that such an opportunity to pay its lender had not been provided to the ArcelorMittal by the CoC.

The L N Mittal-promoted steel firm has reportedly initiated the process of clearing its liabilities in Uttam Galva, which are close to Rs 5,600 crore. It may have to shell out another Rs 2,000 crore to take care of KSS Petron’s dues.

However, the NCLT has not observed how Numetal, the second bidder for Essar Steel’s assets, could be made eligible.

Numetal’s resolution plan could not pass muster because Rewant Ruai, son of the promoter of Essar Steel’s Ravi Ruai, is one of the internal beneficiaries and owners of a shareholder of Numetal through various holding of companies and trusts.

Though the tribunal, in its observation, batted for initiation of fresh bids for Numetal, this would involve starting from the scratch by inviting expression of interest (EoI).

“.. in our humble view such option seems to be more sound, reasonable and legally transparent keeping in view of the statutory change/amendment took place in Section 29 of the Code by inserting a new clause ..” the NCLT bench stated.

Sheshagiri Rao, joint managing director JSW Steel and JSW Gorup CFO, whose company is keen to join the fray as an individual bidder, also believes inviting fresh bids would get more value to the lenders.  

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“In the light of the judgement, we still feel that in the interest of all the stakeholders and if they (CoC) want to maximum value they have to call for fresh bids instead of struggling with these two parties (Numetal and ArcelorMittal).  Giving them (current bidders) time to rectify defects in bids could delay the whole process. It could also be more litigious. So, go for fresh bid as now time has been given by the court up to May 31. JSW Steel can also come in, directly,” he said.

In its conclusion, the Ahmedabad bench upheld the primacy and autonomy of the CoC, said legal experts.

This was NCLT’s conclusion after hearing the eligibility argument of the two bidders in the Essar Steel’s resolution proceeding under IBC. Both Numetal and ArcelorMIttal had challenged the ineligibility of their bid by RP in NCLT.

The tribunal maintained that the provisions of Section 30 of the IBC clearly established the CoC’s significant role in deciding the eligibility of a resolution applicant. In a breach of the procedure prescribed under IBC, the RP had not submitted the resolution plans to CoC, which had taken a call on the ineligibility of the two bidders merely on the RP’s views. 

“What my reading is that NCLT has upheld the primacy and autonomy of CoC. In the section 30, the sub-clause 3 and 4 clearly allude that the CoC will also have to look into the credibility of the resolution plan (of resolution applicants), and along with its feasibility and viability. Therefore, CoC is not only meant to be a rubber stamp once the plan is submitted by the RP,” said a legal expert who did not want to be named.

By Praveena Sharm, DNA Money