Essar Steel sale: Lenders may give time to Arcelor, Numetal to rectify bids

Committee of creditors (CoC) for Essar Steel to take call on bids after order by Ahmedabad bench of the National Company Law Tribunal (NCLT)

The committee of creditors (CoC) for Essar Steel will meet on Tuesday to take a call on the bids after Thursday’s order by the Ahmedabad bench of the National Company Law Tribunal (NCLT). Sources close to the development said, ahead of the CoC meeting, major lenders of Essar Steel met on Monday to thrash out a strategy for the meeting. 

The two main issues that are likely to be discussed are the NCLT order and its implications. The other point would be to give the two bidders, ArcelorMittal and Numetal, time for rectifying their bids, as suggested by the NCLT bench.

“How to cure the ineligibility of ArcelorMittal and Numetal would be discussed at the CoC,” lenders said.

There was also a possibility that the financial bids would be opened on Tuesday and placed before the CoC. The issue of fresh bids, pitched by JSW Steel, is unlikely to be taken up at this juncture.

The NCLT bench, while remanding the first bids to the resolution professional (RP) and the CoC for consideration, noted in its order that the CoC did not follow prescribed procedure to provide reasonable opportunity to the resolution applicants to make overdue payment to remove disability or to make good the disability and pointed to Section 29A(c) and proviso 30 (4). 

Section 29A (c) refers to a provision that disallows persons from submitting a resolution plan if they have an account that has turned into a non-performing asset for more than a year unless they make payment of all overdue amounts with interest before submission of a resolution plan.

The proviso says that if the resolution applicant is ineligible under clause (c) of Section 29A, they shall be allowed by the CoC such period, not exceeding 30 days, to make payment of overdue amounts.

The NCLT bench also observed that mere sale of shares and declassification by ArcelorMittal in Uttam Galva and KSS Petron, both non-performing assets for more than a year, would not absolve them of their responsibility. 

ArcelorMittal had sold its shares in Uttam Galva and L N Mittal in KSS ahead of submission of the Essar Steel bid, in order to become eligible.

The RP and the CoC had, however, found ArcelorMittal to be ineligible on technical grounds, because it was a promoter on the records of stock exchanges even though it had sold its shares.

Lenders were now likely to deliberate whether they would take the NCLT observations into consideration and ask ArcelorMittal to pay dues of Uttam Galva and KSS Petron to become eligible or consider declassification as a method for curing its ineligibility. The NCLT bench has, however, asked the CoC not to be influenced by its observations. 

For Numetal, the NCLT bench has not substituted the view of the RP, who had found it to be ineligible.

The CoC would have to take a call on Numetal’s rectification too. Numetal is likely to present its resolution plan as it had at the time of submission on February 12 with Aurora Enterprises, of which Rewant Ruia, son of Ravi Ruia, is an ultimate beneficiary. 

Ravi Ruia is the promoter of Essar Steel. 

However, Numetal had indicated at the time of bidding that if found ineligible, it would drop Aurora Enterprises. Lenders would also have to decide whether dropping Aurora Enterprises was possible or Numetal would be asked to pay the overdue amount. 

As of now, the deadline for Essar Steel has been extended by a month. The NCLT Bench has excluded the period from March 20 to April 19, the day of the order, from the 270-day window of the insolvency process, as laid out by the Insolvency and Bankruptcy Code.