The bids of both Numetal, a company having VTB Bank as a majority shareholder and the Ruias as a minority partner, and ArcelorMittal for Essar Steel have failed the eligibility test of the legal advisors appointed by the resolution professional as both bidders had connections with non-performing assets (NPAs) in India.
The resolution professional
could seek another legal opinion or approach the National Company Law Tribunal on the point of law. The committee of lenders is expected to meet in the next few days in the matter.
If the bids are ultimately rejected on the basis of the current legal opinion, it might prompt either or both bidders to move court as both think they are eligible for bidding under the Insolvency and Bankruptcy Code, 2016.
Numetal, ArcelorMittal fail to clear legal test
Both bidders had connections with NPAs
ArcelorMittal was promoter of Uttam Galva
LN Mittal promoter of KSS Petron
ArcelorMittal/LNM sell stake before Essar bidding
Ruia family member held 25% in Numetal via Trust
Numetal may move court against legal test result
Lenders may call for bids again
Both bids were backed by legal opinions from noted legal firms with Numetal
taking legal opinion from former Supreme Court judges and former Indian government law officers. ArcelorMittal
was advised by Luthra & Luthra.
Cyril Amarchand Mangaldas and Grant Thornton conducted the legal eligibility test for both the bids. The eligibility test was necessitated after the IBC
was amended recently through an Ordinance to keep out defaulting companies
and their promoters from participating in the auction for stressed assets through the NCLT
The issue with ArcelorMittal
was that it had a 29.05 per cent stake in Uttam Galva Steels, which is now a non-performing asset and will be facing NCLT
proceedings shortly, even though it did not have any board representation or involvement in the management of the company.
However, on February 7, ArcelorMittal
Netherlands BV transferred its shareholding to Sainath Trading Company
Private Limited by way of inter-se transfer for Rs 1 a share. Consequently, the co-promotion agreement dated September 4, 2009, stood terminated.
Earlier, domestic lenders, led by the State Bank of India, had also asked LN Mittal, billionaire-promoter of ArcelorMittal, to repay debts of Rs 13.40 billion taken by KSS Petron
Private Limited after the latter defaulted on its loans in India. Mittal owned a 33 per cent stake in KazStroyServices
(KSS) of Kazakhstan, an oil infrastructure provider company, in his personal capacity. KSS, in turn, holds a 100 per cent stake in KSS Petron, which turned into a NPA in 2015. In this case also, LN Mittal sold his stake in KSS just before the bidding commenced for Essar Steel.
Some of the lenders, however, had clearly said they would look at the promoter status at the time of the company turning into a NPA and not when the shares were sold by a promoter just to become eligible. In the case of the Ruias, Essar Steel
had defaulted on bank loans, which led to the bankruptcy proceedings against the company. The Ruias own a 25 per cent stake in Numetal
through a trust, while VTB Bank
of Russia owns a 75 per cent stake in Numetal
with other partners. Rewant Ruia, son of Ravi Ruia, promoter of the Essar group, was named as the beneficiary of the trust. Essar Steel
had defaulted on bank loans worth Rs 440 billion.
“The whole purpose of amendments to the IBC
was to keep out defaulters. And if they want to be in the race then they must clear outstanding dues. This is a government directive and we cannot go against it,” a CEO of public sector bank told Business Standard asking not to be named.
Chairman Rajnish Kumar
had earlier said promoters must clear their dues so that they could become eligible to bid for the stressed assets.
With inputs from Bloomberg.