NCLT directs lenders to appoint Mumbai-based IRP for Uttam Galva Steels

The National Company Law Tribunal (NCLT) has directed the lenders of steel-producer Uttam Galva Steels Ltd (UGSL) to appoint an Interim Resolution Professional (IRP) to oversee the insolvency process of the company. 

The company owes about 18 lenders around Rs 62 billion in principal and interest payment.

On Monday, the NCLT directed the lenders to appoint a Mumbai-based IRP that will oversee the CIRP of UGSL. It also admitted a subsidiary of UGSL, Uttam Value Steels under the Insolvency and Bankruptcy Code (IBC) as it defaulted on Rs 32 billion worth of loans to banks. 

While the lenders, led by the State Bank of India (SBI), filed petitions against the company under the IBC on April 10 last year, the Mumbai bench of the NCLT has only now directed lenders to appoint an IRP. 

In March, the Miglani family (former promoters of the UGSL) offered lenders one-time-settlement of Rs 28.85 billion, but the SBI rejected the amount outright, saying it would only agree to an out-of-court settlement if 100 per cent of the default amount was paid. 

The reason why there was a substantial delay between the filing of insolvency applications, the admittance of UGSL, and the appointment of an IRP under the IBC, is due to a legal dispute.

ArcelorMittal, a co-promoter of the company till this February of this year, sold its 29 per cent direct stake in UGSL in order to become eligible to bid for Essar Steels. 

Essar Steel's IRP deemed ArcelorMittal as ineligible and in violation of Section 29A of the IBC, which prohibits bidding from firms with ties to other corporate defaulters. 

Until February of this year, ArcelorMittal had a stake in UGSL, and its promoter L N Mittal had a 33 per cent personal stake in KSS Petron, which is also facing IBC proceeding, the company was found ineligible to bid for Essar Steel. 

In May, ArcelorMittal said it would pay all of USGLs dues provided it were declared as the winning bidder for Essar Steel. The company went on to place Rs 70 billion in an escrow account with the SBI, to repay UGSL's debt and fix its eligibility under Section 29A of the IBC. 

Both ArcelorMittal and Numetal (the second bidder for Essar Steel) have filed appeals with the National Company Law and Appellate Tribunal (NCLAT) against the IRP. The NCLAT is yet to pronounce a verdict on the points contested by both ArcelorMittal and Numetal. 

Experts have said that if the NCLAT doesn't stay the decision of the IRP to bar the two companies from bidding, they are most likely to file a fresh set of appeals with the Supreme Court, which could delay the CIRP of UGSL even further. 

UGSL's stock price closed at Rs 10.30 on the NSE, down by 0.96 per cent from its closing price on 31 August.