The legal opinions received by the resolution professional (RP) of Essar Steel from law firm Cyril Amarchand Mangaldas (CAM) and senior counsel Darius Khambata differed on the eligibility of the bids made by ArcelorMittal.
While CAM said ArcelorMittal must pay the dues of the lenders to Uttam Galva Steels and KSS Petron to become eligible for bidding, Khambata was of the opinion that it was not required as long as ArcelorMittal and L N Mittal sold stakes in Uttam Galva and KSS Petron, respectively, and were declassified as promoter.
ArcelorMittal held 29% in Uttam Galva Steels and Mittal personally owned 33% in KazStroyService of Kazakhstan, which, in turn, held 100% in KSS Petron.
ArcelorMittal and Mittal sold shares in both the firms just before the deadline to submit bids for Essar Steel in February.
According to a source in the committee of creditors who attended the March 21 meeting, while lawyers were unanimous on Numetal’s ineligibility, the eligibility of ArcelorMittal India was tested on the company’s and the promoter’s investments in Uttam Galva and KSS Petron. As regards Uttam Galva, both CAM and Khambata were of the view that “positive control” constituted control in terms of Section 29A(c) of the Insolvency and Bankruptcy Code (IBC).
Positive control is the shareholder’s ability to push through or initiate certain actions. However, according to Khambata, if ArcelorMittal completes its declassification as a promoter of Uttam Galva, Section 29A(c) of the IBC will not apply. On March 24, ArcelorMittal was declassified as Uttam Galva Steels’ promoter by the stock exchanges.
However, in CAM’s view, as ArcelorMittal Netherlands exercised positive control over Uttam Galva, merely selling the shareholding prior to submitting the resolution plan by ArcelorMittal India cannot undo the disqualification of the parent unless it pays its dues.
After the RP’s legal counsel, CAM gave its first draft opinion on March 5. On March 7, Khambata was approached, and he gave his opinion to CAM on March 13.
On KSS Petron, the RP told lenders in CAM’s view, negative control over an entity also constituted control for the purposes of testing under Section 29A(c) of the IBC. Negative control is the shareholders’ right to hold back a company from carrying out certain decisions.
Hence, according to CAM, KSS Petron was also a reason on account of which ArcelorMittal India was disqualified while according to Khambata, negative control did not constitute ‘control’ and, accordingly, KSS Petron did not give grounds for disqualifying ArcelorMittal.
On account of differing views, CAM recommended to the RP to take the opinion of Khambata and rely on his advice. The RP stated that relying on Khambata’s view, ArcelorMittal could not be said to be in control of KSS Petron and hence, KSS Petron was not a reason for disqualifying it.
Both CAM and Khambata agreed that the rival bid by Numetal was ineligible because a trust owned by Rewant Ruia, son of Ravi Ruia, a promoter of Essar Steel, was holding 25% in Numetal. VTB Bank of Russia is planning to buy out the Ruia trust shares before the end of March to become eligible to bid for Essar in the second round.
As both the plans were rejected, the RP offered two options: One, initiating a process of inviting bids from all parties, and, two, seeking fresh resolution plans only from those which submitted an expression of interest.
The representatives of ICICI Bank, Punjab National Bank, and other lenders were of the opinion that given the time left for the process to go through, it would be advisable to invite applications only from those who submitted expressions of interest because these bidders had completed due diligence. State Bank of India asked for legal opinion and CAM said legally both options were possible but since JSW Steel had sent a letter to lenders to make a bid, there were chances that JSW Steel might go to the NCLT to seek its approval to participate in the bidding process of Essar Steel.
The next round of bids for Essar Steel is expected by April 2.