ArcelorMittal, others bid for 2nd round of Essar Steel; hearing on Thursday

Essar Steel
Legal counsels for resolution professional (RP), the committee of creditors (CoC) and ArcelorMittal on Wednesday prayed for the second round of bids for Essar Steel to be opened at the earliest at the National Company Law Tribunal (NCLT) Ahmedabad bench. 

The next hearing is slated for April 5, when the RP's legal counsel Darius Khambatta will make his arguments. The three parties prayed to the tribunal bench to allow the opening of bids after Khambatta makes his arguments. The prayer was made in the wake of the 270-day insolvency proceedings deadline ending on April 29.

In the first round too, there was a delay in deciding on the eligibility issue. The bids were submitted by ArcelorMittal and Numetal on February 12 and finally rejected on March 21 on grounds of eligibility under Section 29A, which prompted Numetal and ArcelorMittal to move the NCLT challenging the decision on eligibility. Applications were also filed by the two bidders challenging each other's eligibility. Numetal had also filed an application seeking a stay on the opening of bids which still continues.

In the second round, apart from ArcelorMittal and Numetal, Vedanta is in the fray. Also, JSW is partnering Numetal. 

On Wednesday, the two adjudicating members bench led by Harihar Prakash Chaturvedi and Manorama Kumari of NCLT Ahmedabad heard arguments multiple petitions and counter-affidavits filed by Numetal and ArcelorMittal. 

Darius Khambatta, appearing for the RP, contended that if one were to overlook Numetal's shareholding constituents, then the latter could not rely on the net worth of its shareholders. 

Khambatta was making the argument on the back of Numetal's earlier prayer of ignoring its shareholding constituents including Essar Steel promoter Ravi Ruia's son Rewant Ruia. In order to qualify for the bids, Numetal is banking on the networth of its shareholders including Aurora Enterprises Ltd (AEL) which holds a 25 per cent stake in it.

Representing Numetal, senior counsels Mukul Rohatgi and Janak Dwarkadas argued that ArcelorMittal couldn't absolve itself by merely selling off its shares in Uttam Galva and KSS Petron, the two defaulting companies before participating in the bids but had to clear the debts to be rightly qualified to bid for Essar Steel. 

Numetal also argued that with a 26 per cent stake in KSS Petron through KSS Global, ArcelorMittal, in effect, had control over the defaulter, thereby being disqualified under section 29A of the Insolvency and Bankruptcy Code (IBC).

Section 29 (A) of Insolvency and Bankruptcy Code disqualifies defaulting promoters from participating in the corporate insolvency process and the interim resolution professional had last month disqualified bids by ArcelorMittal India and Numetal Mauritius for Essar Steel.

Dwarkadas, on the other hand, stated "Numetal is a body corporate and not a consortium. Hence, individuals cannot be taken into account unless they have management control. In this case, Rewant is not in control of Numetal and is only one of the shareholders of the entity."

In its counter-argument, ArcelorMittal's counsel Abhishek Manu Singhvi said that while it had severed ties with the defaulting Uttam Galva and KSS Petron before the cut-off date of February 12, Numetal had failed to do so and hence should be disqualified.

Singhvi claimed that the original expression of interest submitted for Essar Steel by Numetal consisted mainly of Aurora Enterprises Ltd and Essar Communications are the stakeholders. Singhvi also said that the Rs 5 billion earnest money deposited by Numetal during the initial bidding round was from Aurora Enterprises.

Singhvi said that the request for proposal (RFP) conditions require that permission of the committee of creditors be obtained for any change in the composition of the bidding consortium, particularly when there is an accompanying change in control. This was not done in the case of Numetal, especially when VTB came in as the largest shareholder.