JSW Group Chairman Sajjan Jindal on Monday said promoters of defaulting firms should not be allowed to bid for stressed assets merely because they had sold their investments in defaulting entities. Jindal was hinting at ArcelorMittal’s attempt to bid for Essar Steel, a stressed asset.
To qualify as a bidder, ArcelorMittal and its promoter L N Mittal had sold stakes in two defaulting companies, Uttam Galva Steels and KSS Petron. The two companies owe a total of Rs 60 billion to lenders, led by State Bank of India (SBI).
“In the spirit of the law, it is not fair to allow promoters of a defaulting company to participate. I will be surprised if that is permitted,” Jindal said.
“If the law itself is changed to allow a defaulter to bid, then it is fine. But when the Insolvency and Bankruptcy Code (IBC) says that the promoter of a defaulter is not allowed to bid, and then that promoter cures himself by just selling the shares, then that is a mockery of the system,” he added.
Jindal said it was important to uphold the spirit of the law because shareholders invested in companies looking at the credibility and track record of the promoters.
“We could not express interest for Essar Steel as we were then bidding for Bhushan assets. So we asked the lenders whether we could bid, but in their discretion they did not want us. Perhaps, the banks do not want more money,” said Jindal.
Last week, the committee of creditors rejected bids for Essar Steel by Numetal, a subsidiary of Russian VTB Bank, and ArcelorMittal after both failed the eligibility test. The lenders’ committee also decided to keep new bidders such as JSW Steel at bay and sought a second round of bids only from those companies that had submitted their expressions of interest (EoIs) before the first round.
Of the seven companies that submitted EoIs, only Numetal and ArcelorMittal had bid in the first round.
The fate of ArcelorMittal’s bid will now be decided by the National Company Law Tribunal in Ahmedabad, as both Numetal and the Mittal company have moved the tribunal. The hearing is slated for Tuesday.
Corporate lawyers said 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 bid made by ArcelorMittal.
Legal opinion taken by both Numetal and ArcelorMittal from several former judges and retired government law officials have also differed, thus setting the stage for prolonged litigation.
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 Mittal sold stakes in Uttam Galva and KSS Petron, respectively, and were declassified as promoters.
“The Section 29A of the IBC provides a cure for the defaulting promoter to become eligible by paying a company’s dues and not by selling its shares. This will be finally decided by the Supreme Court,” said a senior member of JSW’s legal team.