The NCLAT Friday ruled that Numetal's Rs 37,000 crore second-round bid for Essar Steel is valid, but asked rival bidder ArcelorMittal to clear Rs 7,000 crore dues of its previously associated firms within three days to qualify for the acquisition.
A two-member bench of NCLAT headed by its Chairman Justice S J Mukhopadhaya in a 68-page order asked lenders, who are auctioning Essar Steel to recover over Rs 49,000 crore of unpaid loans, to consider the second round bid of Numetal and mining baron Anil Agarwal-led Vedanta.
ArcelorMittal's bid will be considered if it pays dues by September 11.
For ArcelorMittal India (AMI), which was the only other bidder besides Numetal in round-1, the NCLAT held that it needs to remove the "stigma of defaulter" attached to it because of its previous 29 per cent stake in Uttam Galva Steel and KSS Petron.
The National Company Law Appellate Tribunal held that the first round of bid by Russia's VTB Group-backed Numetal in February was ineligible as the firm was 25 per cent owned by Rewant Ruia, scion of Essar Steel's promoter Ruia family. But, he exited the firm before the second round of bid was submitted in March, making Numetal eligible.
NuMetal and steel tycoon Lakshmi Mittal-led ArcelorMittal had in February submitted separate bids to takeover Essar Steel. The Committee of Creditors (CoC), however, disqualified both bids saying their promoters were tied to companies, which were bank loan defaulters and so ineligible under Section 29A of the Insolvency and Bankruptcy Code.
The second round of bids was called where JSW Steel joined NuMetal to put in a bid of Rs 37,000 crore, while Vedanta Ltd entered the fray as a third bidder. AMI too put in a bid.
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Both NuMetal and Essar Steel had challenged disqualification of the first round of bids in the Ahmedabad-bench of the National Company Law Tribunal (NCLT), which did not give any relief to the bidders but has asked the CoC to take another look at the bids before disqualifying them. CoC sought a second round of bids by April 2.
The NCLT order was challenged by both the bidders in NCLAT. After the NCLT order, AMI had offered to repay any outstanding loans owed by Uttam Galva Steels Ltd, where it held promoter stake, and KSS Petron. The steelmaker had placed Rs 7,000 crore in an escrow account, with the condition that lenders disqualify Numetal's bid.
"The amount has not been deposited with the financial creditors," the NCLAT order said. "AMI had made a conditional deposit of Rs 7,000 crores in its own current account (escrow account). Such depositation of the amount in its own escrow account does not qualify as a payment of overdue amounts. A conditional offer to pay the over dues amount cannot be accepted till it is complied in the light of proviso to clause (c) of Section 29A unconditionally".
It asked AMI to clear NPA dues of KSS Petron, although it has divested its shareholding in KSS Global BV (100 per cent owner of KSS Petron) on February 9, 2018, which is three days before submission of the Expression of Interest of Resolution Plan for Essar Steel.
Crinium Bay, a wholly owned direct subsidiary of VTB Bank, holds 40 per cent stake in Numetal Ltd and Rewant Ruia's AEL held 25 per cent stake. At the time for first bid, Russian firm JSC Vo Tyazhpromexport (TPE) held 9.9 per cent and the remaining 25.1 per cent was with Indo International Trading FZCO (INDO).
Before submitting the subsequent 'Resolution Plan', AEL sold its shareholding to INDO and TPE. Thereafter INDO held 34.1 per cent and TPE 25.9 per cent.
"As on March 29, 2018, as the AEL was not the shareholder of Numetal Ltd and all the three shareholders aforesaid being eligible, we hold that Numetal Ltd in respect of Resolution Plan dated March 29, 2018, is eligible," the order said, asking the Committee of Creditors to find out its viability, feasibility and financial matrix.
For AMI, the appellate tribunal said it is giving "one opportunity to make payment of all overdue amount with interest thereon and charges relating to Non-Performing Accounts (NPAs) of both the Uttam Galva and the KSS Petron in their respective accounts within three days i.e. by September 11, 2018".
It further added: "If such amount is deposited in the accounts of both NPA of Uttam Galva and KSS Petron within the time aforesaid and is informed, the CoC will consider the Resolution Plan submitted by AMI along with other Resolution Plans, including the Resolution Plan submitted by Numetal on March 19, 2018".
Commenting on the judgment, NuMetal spokesperson said: "This vindicates NuMetal's conviction that they are an eligible bidder and has given a compelling offer to the creditors for the Essar Steel's resolution plan under IBC".
ArcelorMittal said: "We note today's NCLAT judgment and await the full order, which we will review before determining our next steps".
The appellate tribunal has also directed CoC to take "an early decision" over the bids and place the final selected resolution plan before the adjudicating authority (NCLT) "immediately", who would pass an order regarding its fianlisation.
"The Successful Resolution Applicant will take steps for execution of its Resolution Plan and deposit the upfront money if proposed," said NCLAT while awarding some more time for resolution process by deducting the litigation period of April 26 to September 7 from the 270 mandatory days.
NCLAT also pulled L N Mittal group firm for adopting the tactics of selling its stake in both Uttam Galwa and KSS Petron, before filing its resolution plan saying the same is not a procedure known to law to efface itself of the ineligibility.
It declared AMI a connected person in KSS Pteron despite selling its stake and observed that its control over it will be "evident" from the fact that it has nominee directors, who also resigned on February 9, 2018, which is three days before submission of the expression of interest.