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The insolvency law committee is meeting on Monday to finalise the recommendations to amend Section29A. The section has a provision that bars those related to debtor companies having toxic assets that are classified as non-performing for a year or more from taking part in the bidding process under the Insolvency and Bankruptcy Code (IBC).
The amendments are expected to change the definition of ‘connected-party’, thereby, allowing bids from companies such as ArcelorMittal. The world’s largest steelmaker is facing an eligibility test on the ground that the company and its promoter, L N Mittal, had investments in non-performing Uttam Galva Steels and KSS Petron, respectively.
The committee, looking at the issue of persons being indirectly barred for being connected or related to those ineligible to bid, will give its final recommendations to the corporate affairs ministry.
Lawyers in Mumbai say any such amendment could lead to more litigations, as the regulations are being changed when the insolvency process is already on against 40 companies identified by the Reserve Bank of India.
Banks are expected to call a second round of bidding for Essar Steel after the Parliament approves the changes in the IBC laws. Both ArcelorMittal and Numetal Mauritius, a company majority owned by VTB Bank of Russia, are fighting a pitched battle to take over Essar Steel.
ArcelorMittal sold its 29 per cent stake in Uttam Galva just before Essar Steel's bidding deadline closed. Mittal, too, sold his 33 per cent personal stake in KSS Petron's parent company in Kazakhstan before taking part in the process. ArcelorMittal has said that its bids for Essar Steel were eligible.
Numetal’s bid has also been found ineligible as a trust with Rewant Ruia as a beneficiary owns 25 per cent stake in company. The Ruias were promoters of Essar Steel when the company turned into a non-performing asset. The Ruia trust has offered to sell its stake to VTB Bank so that Numetal becomes eligible for bidding. Both Mittal and VTB Bank officials met top government leaders to lobby for their bids.
The committee is also finalising bidding for medium and small enterprises. The committee will also send recommendations on the bankruptcy code for corporate guarantors, persons going bankrupt and cross-border cases.