Changes in IBC may help ArcelorMittal place a fresh bid for Essar Steel

Insiders said both bids have failed the legal eligibility test, as ArcelorMittal held 29% stake in Uttam Galva Steels, an NPA for over a year

A panel set up by the Ministry of Corporate Affairs (MCA) is making two important changes in the Section 29A of the Insolvency and Bankruptcy Code (IBC). These would help ArcelorMittal place a fresh bid for Essar
Steel. 

First, the definition of “connected people” is being amended. ArcelorMittal has investments in two non-performing assets (NPA) — Uttam Galva Steels and KSS Petron. According to the changed definition, any entity which was not in control of the management of an NPA can apply for other IBC cases. As ArcelorMittal and its promoter LN Mittal were not managing the affairs of the two defaulting companies, it will be allowed to bid for Essar Steel in the second round, said a source. 

Second, the amendments will apply on all cases with prospective effect and not with retrospective effect. As bids received in the first round are expected to be formally rejected, the second round of bids for Essar Steel will be considered as a fresh case. 

The debt resolution of most of the companies is being litigated in the National Company Law Tribunal (NCLT) across India due to vague laws and its interpretations by bidders, resolution professionals and legal advisors, say corporate lawyers. Hence, any change in the law mid-way for Essar Steel debt resolution will be taken to the highest court, as the bidders are cash rich, said a Mumbai-based corporate lawyer.

Of the 12 cases identified by the Reserve Bank of India last year, Essar Steel received bids from ArcelorMittal and Numetal Mauritius, in which VTB Bank of Russia owns majority stake. But even after a month of submission of bids, the resolution professional, Satish Kumar Gupta of Alvarez & Marsal, has not taken any formal decision on the eligibility of the bidders.   

Insiders said both bids have failed the legal eligibility test, as ArcelorMittal held 29 per cent stake in Uttam Galva Steels, an NPA for over a year. Also, LN Mittal held 33 per cent stake in KSS of Kazakhstan which held 100 per cent stake in KSS Petron. Both the companies have been referred to the NCLT for debt resolution by banks. 

Numetal, on the other hand, had 25 per cent stake held by a Singapore based Trust in which Rewant Ruia, a Ruia family member, was a beneficiary. Essar Steel defaulted to bank debt worth Rs 440 billion when the Ruias were in control of Essar Steel. As per 29A, any entity holding stake in a non-performing asset was ineligible for bidding. Hence, both ArcelorMittal and Numetal offers are expected to be rejected formally.

Backed by legal advice from top lawyers and former judges, both ArcelorMittal and Numetal have said their offers are eligible as per the present 29 A norms. 
 

VTB Capital has said that it would increase the offer for Essar Steel and is ready to buy Ruias stake in Numetal Mauritius so that it can become eligible for bidding.