The Supreme Court (SC) on Thursday granted an opportunity to ArcelorMittal and Numetal to clear dues for non-performing assets (NPAs) in two weeks to be eligible to bid for Essar Steel.
For Numetal, this is a significant departure from the National Company Law Appellate Tribunal’s (NCLAT’s) order, which had found its second bid valid. The tribunal had directed Arcelor to clear its dues within three days to become eligible.
The SC said ordinarily the appeals would have been disposed of by declaring both applicants ineligible. However, the counsel of the committee of creditors (CoC) had requested the court to give one more opportunity to the parties to pay off their dues, as the best resolution plan could then be selected by the requisite majority.
The court exercised its extraordinary power under Article 142 of the Constitution in granting ArcelorMittal and Numetal two weeks to make the payment.
If the payments were made within the period, both applicants could re-submit their resolution plans of April 2 to the CoC. The committee would have two months to select the best plan, after also taking into consideration the one submitted by Vedanta.
The order is likely to translate into Arcelor shelling out Rs 70 billion for Uttam Galva Steels and KSS Petron; for Numetal, the bill could be upwards of Rs 390 billion.
One of the options that could be considered by Numetal was to clear all dues and resubmit a resolution plan.
In the second round, the offers are: Arcelor’s revised bid stands at Rs 420 billion, Numetal has proposed to match it, and Vedanta has offered Rs 340 billion.
The Bench headed by Justice R F Nariman made it clear that if no plan was found worthy of acceptance by the requisite majority, Essar Steel would go into liquidation.
In the second round, Numetal had dropped Aurora Enterprises of which Rewant Ruia is the ultimate beneficiary to become eligible. Rewant Ruia is the son of Ravi Ruia, who is the promoter of Essar Steel.
Numetal was also joined by JSW Steel as an investor in the operating company.
The order, however, lists two main reasons to connect Rewant Ruia with the second bid, even after his exit from Numetal.
First, Rs 5 billion deposited towards submission of earnest money came from Aurora Enterprises, and continued to remain even after April 2, 2018 (the date of submission of second offers), showing thereby that Rewant Ruia was present, insofar as Numetal’s second resolution plan was concerned.
The second point is the proximate state of affairs before submission of the resolution plan on April 2, beginning with Numetal’s initial corporate structure, and continuing with the changes made to date.
“We therefore hold that, whether the first or second resolution plan is taken into account, both would clearly be hit by Section 29A(c), as the looming presence of Shri Rewant Ruia has been found all along, from the date of incorporation of Numetal, till the date of submission of the second resolution plan,” the order said.
The court, has however, quashed arguments made by the Arcelor counsel against VTB Bank, the majority shareholder in Numetal.
The apex court also found Arcelor to be ineligible.
Prior to submission of Essar bid, Arcelor had sold shares of Uttam Galva to its promoters in an inter-se transfer at Rs 1 a share. However, the court said that such sale was directly contrary to a non-disposal undertaking given to lenders of Uttam Galva.
“It is also clear that shares worth Rs 19.5 each were sold at a distress value of Rs 1 each, so as to overcome the provisions of Section 29A(c) and the proviso thereto. It is clear therefore that the Uttam Galva transaction clearly renders AMIPL ineligible under Section 29A(c),” the order said.
Section 29A (c) of the Insolvency and Bankruptcy Code (IBC) debars the promoters of an NPA for more than a year from submitting a resolution plan, and the proviso to Clause(c) says a person shall be eligible to submit a resolution plan if payment of all dues with interest is made before the submission of a resolution plan.
The same rationale was applied to KSS Petron as well. In KSS Global, Fraseli, a company managed and controlled by L N Mittal, had sold its shares, ahead of the Essar bid.
During the course of the arguments, Numetal’s counsel had said Pramod Mittal, brother of L N Mittal, held shares in two other companies which were declared to be NPAs more than one year prior to the date of commencement of the insolvency process for Essar.
However, the court did pass any judgment on this point as the argument was made before it for the first time.
The order leaves little scope for bidders in this case or any other under the IBC to go to the adjudicating authority at any and every stage.
The order has mentioned a model timeline for resolution under the IBC. It said once a resolution plan is approved by the CoC, the adjudicating authority should then decide who meets the rules.
Source: Business-StandardWhy they have to pay
Numetal
Rs 5 billion earnest money continues to remain deposited by Aurora Enterprises, of which Rewant Ruia is the ultimate beneficiary. Even after its exit, “looming presence” of Rewant Ruia found in first and second bid
ArcelorMittal
- Sale of shares in Uttam Galva to get out of ineligibility
- Uttam Galva share sale contrary to NDU
- KSS shares also sold to avoid consequence of Section 29A(C)