In February, ArcelorMittal and its chairman, L N Mittal, had de-classified themselves as promoters of Uttam Galva Steels and KSS Petron, respectively, to become eligible to bid for Essar Steel. Under the IBC, the promoters of defaulting companies
must first pay their dues to become eligible to bid for stressed assets.
Corporate lawyers said banks would not accept a conditional offer. “The conditional offer does not purge them (ArcelorMittal) of the ineligibility as they have to pay off the dues before their plan can be considered by the committee of creditors.
Secondly, they have now transferred their shares in Uttam Galva, so they will have to work out a structure with Uttam Galva and its promoters to pay their dues to banks in return for an equity or management stake, which may be a long-drawn process, more particularly since it is a listed company. Shareholders’ consent, Sebi takeover code, etc, may be relevant conditions precedent to payment of funds to Uttam Galva lenders,” said Alok Dhir of Dhir & Dhir Associates.
Dhir said it would be better for lenders to decide to cancel the first bid and go for evaluating the second round of bids to fulfil the object of the code for enhancement of value to the stakeholders.
There is precedent in other cases like Bhushan Power and Binani Cement where the NCLT allowed more bids so that banks can maximise their recovery.
On Wednesday, ArcelorMittal transferred Rs 70 billion to an escrow account of State Bank of India (SBI) owing to payment of outstanding dues relating to defaulting firms in a bid to become eligible for Essar Steel.
This was after the bids of ArcelorMittal and its rival Numetal’s first round of bids were found ineligible by the resolution professional. ArcelorMittal was disqualified on grounds that it held a 29 per cent stake in Uttam Galva, which amounted to direct control in the defaulting company, while its promoter, Lakshmi Mittal, was holding a 33 per cent stake in KSS of Kazakhstan, which in turn held 100 per cent shares of KSS Petron, a bank defaulter in India, in his personal capacity, which amounted to negative control.
On the other hand, Numetal was disqualified on grounds that Rewant Ruia, son of Essar promoter, Ravi Ruia was beneficiary of a Trust, which held a 25 per cent stake in Numetal. Both the companies, however, had moved the Ahmedabad bench of the NCLT, which remanded the first round of bids to the resolution professional and the CoC for consideration and pointed to payment of dues, especially for ArcelorMittal, as a cure for its ineligibility.
ArcelorMittal has appealed against the observations of the NCLT. Numetal, too, has appealed, saying that the cure was not applicable to the company.