After a protracted legal drama at the bankruptcy court, the insolvency process for Essar Steel is back to square one: The National Company Law Tribunal has ordered the resolution professional (RP) and the Committee of Creditors (CoC) of the beleaguered company to reconsider the bids submitted by Numetal and ArcelorMittal in the first round in February.
Pronouncing the order yesterday, the Ahmedabad bench of the NCLT noted that certain provisions of the Insolvency and Bankruptcy Code (IBC) were not followed by the CoC and the RP while disqualifying both the bids earlier. According to The Economic Times, the court was of the opinion that RP Satish Gupta of Alvarez & Marsal and the CoC had enough time to issue a revised advertisement on the qualification of bidders after the IBC was amended in November 2017 to bar defaulters and related parties from bidding for assets undergoing resolution. The tribunal further said that they were hasty in going in for a second round.
"The CoC did not follow the procedure," Justice Harihar Prakash Chaturvedi reportedly said in his ruling after having heard arguments for about a month. "Not giving enough time to applicants for rectifying the ground of disqualification also contravenes the IBC and is also against the law of the land."
According to the bench, the decision to disqualify the Numetal and ArcelorMittal bids should have been taken by the consortium of 31 lenders after the RP had submitted his report, which would have included disqualifying grounds. Hence, the process was incomplete they claimed.
The tribunal also decided to exclude the period from March 20 to April 19 -while the matter was being heard in court - from the 270-day timeframe for the resolution process under the IBC. This means that the deadline that which would have ended on April 29 has now has been pushed back to May 20.
Both the petitioners, Numetal and ArcelorMittal, welcomed the verdict for the prize is a big one, despite the fact that Essar Steel boasts the third biggest debt pile (over Rs 44,000 crore) among the initial 12 companies identified by the RBI for insolvency proceedings. Steel king LN Mittal has wanted to build a steel plant in the country since 2005 but has been repeatedly thwarted by regulatory hassles. Essar's 10 million tonne steel plant in Hazira, Gujarat - India's largest single-location flat steel plant - fits neatly into the company's plan to create a sizable footprint in the Rs 3.15 lakh crore Indian steel market. Numetal, likewise, stands to gain much from the acquisition since the World Steel Association earlier projected steel production in the country to grow at 7.1 per cent this year, the highest rate among the top 10 steel-using countries.
"We welcome the NCLT order returning the matter back to the creditors for reconsidering our original bid. We have put forth a very compelling resolution plan both industrially and financially. We hope our proposal will be considered by the CoC with a fair and holistic view," a Numetal spokesperson said in a statement.
In a similar vein, the other bidder in a statement said that "ArcelorMittal, in partnership with Nippon Steel and Sumitomo Metals, is the most credible bidder for Essar Steel and will bring considerable value to the Indian steel industry. We had made a strong offer backed up by a detailed industrial plan and now hope for a swift resolution."
To remind you, after six months of painstaking insolvency proceedings and due diligences, these two players were the only bidders for Essar Steel in February. But the CoC had rejected both bids on the grounds that they were ineligible under the provisions of Section 29A of the amended IBC. While Rewant Ruia's minority stake in Numetal was a bone of contention since he was deemed a related party, ArcelorMittal's ineligibility stemmed from the fact that it had sold its 29 per cent in Uttam Galva, which is also facing insolvency proceedings, just weeks before submitting its bid for Essar.
Both companies challenged the lenders' decision at the NCLT soon after they were disqualified. Numetal had filed an application on March 20, pre-empting the NCLT decision, while ArcelorMittal India moved the Tribunal on March 26. Both claimed that rules had been followed before submitting their bids and both have since worked their way out of the roadblocks. ArcelorMittal sought out and successfully bagged classification as a non-promoter in Uttam Galva while at Numetal, JSW Steel bought out the 25 per cent stake held by Ruia.
Ironically, on March 28, Numetal counsel Mukul Rohatgi had requested that the resubmission of bids be deferred till the eligibility matter was heard on merits. However, NCLT had refused to stay the second round of bidding, but it had directed the CoC not to decide on the bids till the final hearing, which was supposed to have happened on April 4.
In light of yesterday's pronouncement, the NCLT's nod to the second round ought to raise eyebrows. It has only set the stage for an even longer court battle. In the second round, apart from the two players mentioned above, Anil Agarwal's Vedanta had thrown its hat in the ring.
Significantly, the tribunal did not give its opinion about the eligibility of the new bids, which are yet to be opened. "It is going to be a long haul," said one of second-round bidders, hinting at a legal battle ahead. It's checking whether there are grounds to appeal given that the order has only dealt with the first-round bidders. The two later entrants will decide on their course of action after studying the order, said people aware of the matter.
With PTI inputs