Essar Steel bid: Arcelor alleges differential treatment in eligibility test

ArcelorMittal has alleged it received differential treatment in the eligibility test it failed in the first round of bidding for Essar Steel as compared to JSW Steel’s with respect to Monnet Ispat & Energy. 

The case, as put forward by the legal sources close to ArcelorMittal, is somewhat like this: Seema Jajodia, who is a sister of JSW group chairman and managing director Sajjan Jindal and an erstwhile promoter of Monnet Ispat, had transferred her shares in Monnet Ispat on October 24, 2017, but continued to be reflected as a promoter in the shareholding pattern uploaded on the stock exchanges for the quarter ended December 2017. The Monnet Ispat bid was submitted on December 12, but the rectified shareholding pattern was uploaded on the stock exchanges on January 27.

The legal sources said while JSW’s case was similar to ArcelorMittal’s, the latter did not get the same treatment. “The resolution plan submitted by JSW-AION was approved by the committee of creditors. Therefore, it is clear that the sale of shares by Jajodia prior to the submission of the resolution plan was considered sufficient by the resolution professional and creditors of Monnet Ispat for the purposes of Section 29A of the IBC (Insolvency and Bankruptcy Code),” the sources said.

ArcelorMittal was found to be ineligible in the first round of bidding for Essar Steel as it remained a promoter of Uttam Galva Steels in the records of the stock exchanges. Legal sources close to ArcelorMittal said the company had sought declassification from the stock exchanges prior to the submission of bid for Essar Steel, but the final nod came well after the submission. The Essar Steel bids were submitted on February 12, ArcelorMittal sought declassification on February 8 and stock exchange approvals came on March 21 and March 23.

Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, however, said the two cases were not similar and, hence, the resolution professional had taken different views.

Another JSW official, however, said that the transfer of shares by ArcelorMittal to Uttam Galva Steels was illegal, as according to the terms of a loan agreement with the lenders, prior permission for the sale of shares from the lenders was required.

An ArcelorMittal spokesperson, however, said: “This has nothing to do with the reason the resolution  deemed us ineligible. JSW is making that up. Where is there any evidence that this why the RP deemed us ineligible? It was pure technical reason we had not yet been declassified. Nothing else. Also, there was no breach.”

ArcelorMittal’s and Numetal’s bids for Essar Steel in the first round were rejected on grounds of eligibility and a rebid was announced. In the second round of bidding, apart from ArcelorMittal, JSW is partnering the Numetal consortium. Vedanta, too, has also thrown its hat in the ring.

ArcelorMittal and Numetal have challenged disqualification of their first round of bids before the Ahmedabad Bench of the National Company Law Tribunal and an outcome is expected on Monday. 

Whether ArcelorMittal will take up the point on differential treatment legally is not clear. 

“We will evaluate options of legal recourse on this point after Monday,” legal sources close to ArcelorMittal said.