Mumbai: In a major setback for the promoters of debt-laden Essar Steel, the Ahmedabad-bench of National Company Law Tribunal (NCLT) on Tuesday rejected Ruia family’s plea to repay the company’s debt, effectively scuttling the group’s attempt to hold on to the company and boosting the chances of lenders selling it to a new owner, possibly ArcelorMittal. NCLT said in its verdict that there is no illegality from the lenders’ side for not accepting Essar Steel promoters’ plan.
The Essar group hinted at challenging the verdict, citing the last week’s Supreme Court order that upheld the August 2018 amendment to the IBC law by adding Section 12A which allows creditors to take the company out of insolvency proceedings and allows out-of-court settlement with an upfront payment of the dues.
If it is not challenged again, this opens the first major victory for the LM Mittal-run ArcelorMittal, which is the world’s largest steel maker, to the country which is one the fastest growing markets for the alloy. His earlier attempts through joint ventures-Uttam Galwa and KS Petron ended up as failures.
The Ahmedabad bench comprising adjudicating authority Manorama Kumari and Harihar Prakash Chaturvedi said the Rs 54,389-crore bid by Essar Steel Asia Holding, which is much higher than the winning bid by ArcelorMittal’s Rs 42,000 crore, is not maintainable as the only way to make a proposal is through Section 12A.
ArcelorMittal termed the verdict as “a positive development for both Essar Steel India and the country more broadly as the ruling protects the integrity of the IBC and ensures its legitimacy as a rules-based law. We now hope for a swift resolution to the case.”
However, hinting at challenging the verdict, an Essar group statement maintained that it still continues to believe that its bid is the most compelling one, wherein no lender/creditor loses even a penny., “We continue to believe our offer of Rs 54,389 crore is the most compelling proposal available to Essar Steel creditors.
Our offer to repay all classes of creditors and fulfills the IBC’s overriding objective of value maximisation that is established time and again by courts at all levels. “We submitted the proposal under Section 12A and the recent SC judgement has established that the section’s provisions are applicable retrospectively,” it said.
“We will take a call on our next steps after going through the full order,” the company said. The NCALT earlier this month had given a deadline to the Ahmedabad bench to clear the case before January 31. The 10-million tonne per annum Essar Steel is one of the newest steel mill in the country and was the crown jewel for the Ruias after its sold the flagship 20-mmillion tonne Essar Refinery last year to the Russians. ,Essar Steel is one of the biggest 12 accounts that the RBI had in June 2018 referred to the NCLT. The original promoters owed more than Rs 49,000 crore to a clutch of lenders led by SBI.
Bidding through Essar Steel Asia Holding, which owns 77 percent in the crippled steel mill, was the second attempt by the Ruia brothers to wrest control of the company after their failed bid to do so with Numetal, a Mauritius based shell company promoted by Revant Ruia and others like the VTB Bank of Russia. On the contention of Essar Steel Asia Holding that they have the Constitutional “right to own property”, the bench made it clear that IBC overrides the said constitutional provision.
Essar Steel said that the company’s offer of Rs 54,389 crore is the most compelling proposal available to its creditors and it seeks to repay all classes of creditors and fulfil the IBC’s overriding objective of value maximisation that has been established time and again by courts at all levels. “We submitted the proposal under the recently introduced section 12A of the IBC and the recent judgement of the Supreme Court has established that the section’s provisions are applicable retrospectively,” said a spokesperson of Essar Steel.
“We are awaiting a copy of the full NCLT order, and will take a call on next steps after we have thoroughly gone through the contents.” Welcoming the order ArcelorMittal said the ruling by the NCLT protects the integrity of the Insolvency and Bankruptcy Code (IBC) and ensures its legitimacy as a rules based law. “This is a positive development for both Essar Steel India and the country more broadly. We hope now for a swift resolution to this case,” the company said.
Last week, the National Company Law Appellate Tribunal (NCLAT) had asked the Ahmedabad-bench of the company law court to pass an order on the proposal of Essar Steel’s financial creditors to give ArcelorMittal control of the company, which they had auctioned to recover unpaid loans., Essar Steel in a statement had said the Rs 54,389-crore offer by its shareholders to pay all dues of financial and operational creditors of the company was much superior to a rival offer by ArcelorMittal and lenders should not be pressured into giving control of the company to any entity that undervalues it.
ArcelorMittal had offered to pay creditors Rs 42,000 crore to take over Essar Steel that faced insolvency proceedings to recover Rs 50,800 crore of unpaid loans. The Committee of Essar Steel creditors chose this proposal ignoring a last-minute offer by the shareholders of Essar Steel to pay all dues of both financial and operational creditors.
Earlier, Aditya Mittal, group chief financial officer and chief executive officer of ArcelorMittal, told CNBC-TV18 that Essar Steel’s insolvency case must be resolved soon as public sector banks are losing Rs 17 crore a day due to the delay in resolution. All promoters have the right to buy back their companies by paying back, but not 540 days later,” he said on the sidelines of the World Economic Forum in Davos. Constituted in 2016, NCLT is a quasi-judicial body that adjudicates issues relating to Indian companies.
