The Ahmedabad bench of the National Company Law Tribunal asked the committee of creditors and the resolution professional to review their decision rejecting the bids of Numetal Mauritius and ArcelorMittal India for acquiring Essar Steel Ltd.
The NCLT, in its order passed today, said the CoC and the resolution professional did not follow due process while assessing the eligibility of the two bids. Specifically, the NCLT pointed at violations of Section 30(4) of the Insolvency & Bankruptcy Code by the lenders. Under this section, a motion has to be passed through a vote supported by at least 75 percent of the lenders. The bids will now be presented before the CoC who will decide on their eligibility.
The tribunal also decided to exclude the period between March 20 to April 19 from the 270-day period available to the resolution professional and the lenders under the new law. The deadline, which would have ended on April 29, now stands deferred by 30 days.
The tribunal said the second round of bids called by the lenders and the resolution professional seems prima facie invalid. A final decision on the validity of the rebids will come after the CoC decides on the eligibility.
The order came after both bidders approached the tribunal, arguing that their bids should be deemed eligible and a second round of bids should not be entertained. The two bids were considered ineligible by the lenders and the resolution professional as they were seen to be in violation of Section 29(A) of the Insolvency and Bankruptcy Code. The section, introduced as an amendment, does not allow promoters of a defaulting company to submit a resolution plan.
In the case of Numetal Mauritius, the Ruia family - promoters of the Essar Group - had an interest in the bidding entity. ArcelorMittal was disqualified as it was classified as a promoter of Uttam Galva Steel Ltd., a loan defaulter. Both bidders submitted fresh bids in the second round. Numetal said that Ruia family members are no longer part of the bidding consortium. ArcelorMittal declassified itself as a promoter of Uttam Galva.
In a statement after the NCLT order, ArcelorMittal said, “We have always maintained that we are eligible to bid for Essar Steel and are pleased to see that the NCLT wants our offer to be presented to the committee of creditors.”
ArcelorMittal, in partnership with Nippon Steel & Sumitomo Metals, is the most credible bidder for Essar Steel and will bring considerable value to the Indian steel industry.ArcelorMittal Statement
Numetal too welcomed the order and said it would await the detailed order before commenting further. “We have put forth a very compelling resolution plan both industrially and financially. We hope our proposal will be considered by the Committee of Creditors with a fair and holistic view,” it said in a statement.
Lawyers BloombergQuint spoke with also welcomed the tribunal’s direction. “You can’t have a situation where on an ad hoc basis you just keep rejecting the bids on some or the other grounds. The NCLT has rightly called upon both the CoC and the RP to look at the bids,” Sanjay Asher, senior partner, Crawford Bayley & Co. said.
DSK Legal’s Managing Partner Anand Desai said the extension of the resolution timeline was necessary for any real resolution. “It cannot be that because a litigation is pending and a challenge has been mounted, that becomes a reason to not follow the intent of the entire process that is supposed to be followed,” Desai said.
The Dirty Dozen
Essar Steel is one of the largest companies being restructured under the insolvency process and it owes more than Rs 49,000 crore to its financial creditors. It was one of the 12 accounts shortlisted by the Reserve Bank of India for immediate insolvency action in June 2017. The 12 cases account for Rs 2.77 lakh crore in bad loans, according to a March report by CLSA.
The deadline for resolution in most of these cases is set to expire soon, since the bankruptcy law has set a 270 day period for resolution. In the case of Essar Steel, the deadline ends on April 28.
(An earlier version misstated the time frame that will be excluded from the deadline under the bankruptcy law)