IBC: Why NCLAT Found Vedanta, Tata Steel Eligible To Bid For Insolvent Assets
In an order that combined appeals against insolvency proceedings of Bhushan Steel Ltd. and Electrosteel Steels Ltd., the NCLAT found the respective successful resolution applicants Tata Steel Ltd. and Vedanta Ltd. eligible to submit bids.
The appellants, Renaissance Steel India Pvt. Ltd. in the Electrosteel matter and Neeraj Singhal and others in the Bhushan Steel case, had cited previous convictions of companies related to the bidders as grounds for ineligibility to bid under the Insolvency and Bankruptcy Code.
Renaissance cited Vedanta’s connection to Konkola Copper Mines. The miner, a subsidiary of Vedanta Resources PLC (parent of Vedanta Ltd.), was found guilty of flouting environmental norms by the Zambia government and was fined.
In the case of Tata Steel, its U.K. subsidiary was penalised under the British law for violation of the U.K. Health and Safety at Work Act. That was cited by the appellants as grounds for Tata Steel’s ineligibility to bid for Bhushan Steel.
In both cases, the National Company Law Appellate Tribunal found that the offences were not severe and don’t attract the disqualification criteria laid down under Section 29A (d) of the insolvency code.
Section 29A lists criteria for ineligibility of resolution applicants. The provisions state that if the applicant, or a person acting in concert with it or a connected party to it, has been convicted of a crime punishable by imprisonment of two years or more, it is ineligible to participate in the insolvency resolution process. It applies even if such a conviction has been made under foreign laws.
As the offences of both Vedanta Resources-owned Konkola Copper Mines and Tata Steel U.K. were found to be less severe than those deemed ineligible under the insolvency code, both the bidders were found to be eligible to submit resolution plans in the respective insolvency resolution cases of Electrosteel and Bhushan Steel.
The order clears the way for Vedanta to takeover Electrosteel and for Tata Steel ongoing acquisition of Bhushan Steel, unless the appellants move the Supreme Court.
The National Company Law Tribunal had approved a resolution plan submitted by Vedanta for Electrosteel Steels in April, making it the first among the 12 large stressed accounts identified by Reserve Bank of India last year to get resolved under the Insolvency and Bankruptcy Code.
The resolution plan involved close to Rs 5,300 crore cash payout and a haircut of 60 percent for lenders. Electrosteel Steels owes banks more than Rs 13,000 crore, of which about Rs 5,000 crore is to State Bank of India alone.
On May 18 Tata Steel completed the acquisition of 73 percent stake in Bhushan Steel as part of its resolution plan under the Insolvency and Bankruptcy Code.
The board of Bhushan Steel approved the sale of 74.99 shares to Tata Steel’s wholly owned subsidiary Bamnipal Steel Ltd. for nearly Rs 159 crore, the company said in its filing with the stock exchanges. As part of this transaction, Bhushan Steel has also appointed three Tata Steel veterans – Anand Sen, Rajeev Singhal and Dibyendu Dutta – on its board.
Lenders to Bhushan Steel also received 7.25 crore equity shares worth Rs 2 each, after conversion of Rs 14.5 crore worth loans in the company, the exchange notification said.
With this acquisition, Bhushan Steel is now among the first of the 12 large corporate accounts which were referred for insolvency action in June 2017 by lenders, after the Reserve Bank of India directed them to do so. Tata Steel’s resolution plan received a nod from the National Company Law Tribunal on Tuesday.