Prashant Ruia, Director of Essar Groups speaks to Bloomberg in an interview. (Photographer: Scott Eells/Bloomberg News)

Ruias Face Another Setback As Essar Power Lenders Move To Invoke Guarantees

The Ruia family, mounting one legal battle after another to thwart Essar Steel Ltd.’s insolvency resolution, faces a fresh setback.

Lenders to the Essar Group’s power companies have filed recovery cases to invoke personal guarantees provided by the promoters, two people aware of the development told BloombergQuint. Private lender ICICI Bank Ltd., and state-run IDBI Bank Ltd. moved various benches of the debt recovery tribunal, the people said without willing to be identified as they are not authorised to speak to the media.

Essar Power Mahan
ICICI Bank Ltd. is fighting a case at the Delhi bench of the DRT, trying to recover personal guarantees offered against loans to Essar Power Mahan Ltd., which has set up a 1,200-megawatt capacity plant at Singrauli district, Madhya Pradesh. The loans, and consequently the guarantees, were to purchase and develop a coal mine which has since then been returned to the government pursuant to a Supreme Court order on allocation of coal mines.

The personal guarantees could run up to Rs 260 crore, the first person quoted above said requesting anonymity. The Delhi bench fined the Ruias since they did not provide their personal financial details on time. It also ordered the promoters of Essar Group to pay their dues and asked Prashant Ruia to inform lenders each time he travelled out of the country, the person said.

Essar Power Mahan is currently awaiting an order from the Delhi High Court which was hearing a case on the company returning its coal mines in Madhya Pradesh, without facing any penalties. On November 29, 2018, the high court reserved its order in the matter and is yet to come out with a full order.

While the Union of India argued its case, it mentioned on three separate occasions that it would not initiate any corrective actions against the company for the duration of the case. However, in the absence of an order for the last three months, it is not clear whether the guarantees can now be encashed by ICICI Bank.

Essar Power Gujarat
Last month, IDBI Bank filed a recovery petition against the Ruias at the Ahmedabad bench of the debt recovery tribunal, seeking to recover personal guarantees worth Rs 50-60 crore in Essar Power Gujarat, the second person spoke on condition of anonymity. Lenders led by State Bank of India are also in the process of filing for recovery proceedings against Essar Energy U.K. to invoke corporate guarantees provided by the company for loans to Essar Power Gujarat, the person said.

While seeking a no-objection certificate from lenders during the Essar Oil sale in 2015-16, Ruias had agreed to provide personal guarantees for Essar Power Gujarat and had promised to repay the dues in the event of a default, the second person quoted earlier said.

SBI, IDBI Bank and ICICI Bank have yet to respond to BloombergQuint’s emailed queries.

Essar Group Response

The Essar Group, in a response to BloombergQuint’s queries said that no liabilities have crystalized in the both the cases mentioned above.

“We confirm that no liability has crystalized under both the cases being referred. Further, given the facts,  the company is confident that no liability can crystalize under these guarantees in future too,” an Essar Group spokesperson said in an email response on Thursday.

The spokesperson added that the power sector has been under stress for a variety of reasons including cancellation of coal mines and non-availability of power purchase agreements. “We are hopeful that we will address all the residual issues of our power portfolio in the next 2-3 quarters.”

The group went on to state that over the past two years, it has repaid more than Rs 1.37 lakh crore of debt to Indian banks. This represents more than 80 percent of the group debt.

Essar Steel
The lending consortium to Essar Steel had already filed a case at the Ahmedabad bench of the DRT, invoking guarantees worth Rs 11,500 crore offered by Prashant Ruia and his uncle Ravi Ruia, the first person cited earlier said.

The scale of personal guarantees being invoked are important at a time when the Ruias and Essar Group are trying to wrestle back the ownership of Essar Steel, which is close to be sold to ArcelorMittal, after a long drawn and highly litigated insolvency process.

In the response the Essar Group spokesperson has claimed that since the promoters of Essar Steel have already offered to pay the entire Rs 45,000 crore owed to lenders.

As regards to personal guarantees extended for Essar Steel India, the promoters have already offered to the lenders to repay Rs 45,000 crore which provides full recovery to lenders. Under the circumstances no liability can arise under any personal guarantee.
Essar Group Spokesperson

While there is a moratorium on filing legal proceedings against a company under the Insolvency and Bankruptcy Code, 2016, it does not extend to guarantors of the firms. Lenders are free to move against these guarantors to recover their dues.

Also read: Essar Steel’s Insolvency: Are Ruias Back In The Game?

This story has been edited to reflect a revised comment from the Essar Goup after it withdrew its previous response.