Numetal Asked To Establish Subterfuge Charge Against ArcelorMittal
The Supreme Court today asked Russia’s VTB Bank-promoted Numetal to establish that there was “subterfuge” by rival bidder ArcelorMittal in divesting its shares in two debt-ridden firms before bidding for Essar Steel.
The observation by a bench of Justices RF Nariman and Indu Malhotra came when Numetal accused steel and mining major ArcelorMittal of cheating Indian banks of Rs 7,000 crore owed by Uttam Galva Steels Ltd. and KSS Petron by selling its shares just before bidding.
During the day-long hearing, senior advocate Mukul Rohatgi, appearing for Numetal, alleged that ArcelorMittal had disposed off its shares in a “tearing hurry”. He added that this was contrary to the ‘non-disposal’ agreement signed with the bankers that said stakes in Uttam Galva cannot be sold without taking the lenders’ consent.
Instead of paying dues to the banks, it (ArcelorMittal) says that it was aware of the disqualification. The only manner known to law to get rid of disqualification is to pay. The payment of dues of Uttam Galva is the condition precedent to apply for the bid. There was no scope of post-facto payment of duesMukul Rohatgi, Advocate for Numetal
The bench said irrespective of the claim that ArcelorMittal was the promoter at Uttam Galva, it has provided the documents to establish that it was not managing affairs at the firm. They were also not on its board and there was only a “co-promotion agreement” between them.
“There has to be subterfuge. There have to be documents to assume that this (sale of shares) was part of a devious and fraudulent design,” the bench said. “You (Numetal) will have to show that they were the active promoters of Uttam Galva.”
Rohatgi said that ArcelorMittal was also the promoter of debt-ridden entities Uttam Galva and KSS Petron and exited just before the bidding for Essar Steel. “The bankers of Uttam Galva have a non-disposal agreement, and as per it, the promoters cannot sell their shares without the consent of lenders and sale of shares was to cheat the lenders,” he alleged.
Senior advocate Harish Salve, appearing for ArcelorMittal, objected to the allegations and asked whether his submissions were part of the records. To this, the Numetal counsel said he would deal with this aspect tomorrow.
There was “no taint” on Numetal, rather it was on ArcelorMittal whose bid should have been rejected as it had flouted the main condition of not clearing the dues before submitting its bid, Rohatgi claimed.
He referred to the condition before the Section 29A was brought into the Insolvency and Bankruptcy Code providing further criteria for disqualification. Rohatgi said the shareholders of Numetal changed with the change in the law that the promoters of a defaulting company cannot bid for the same entity.
Salve, earlier in the day, concluded his submissions and opposed the allegations that steel magnate LN Mittal’s relatives were associated with a lot of defaulting companies. The advancing of arguments remained inconclusive and would commence tomorrow.
Earlier, ArcelorMittal had said that Numetal was not eligible to bid for Essar Steel on several grounds, including that it was a “shell company” created by a firm in which Essar group promoters had majority shares.
Numetal, a consortium of Russia's VTB-JSW, has also filed an appeal challenging the National Company Law Appellate Tribunal order allowing ArcelorMittal to take part in the bid and alleged that the firm stood disqualified due non-deposition of the money.
It had ruled that Numetal's second bid for Essar Steel was eligible but the same by ArcelorMittal will qualify only if it cleared the Rs 7,000 crore dues of the two firms it was previously associated with.