The Committee of Creditors of the beleaguered Essar Steel have been granted a final eight-week window by the apex court to finalise a bid, failing which the steel company will go into liquidation. The Supreme Court today exercised its extraordinary power under Article 142 of the Constitution to allow ArcelorMittal and Russia's VTB Capital-backed Numetal to submit fresh bids for Essar Steel provided they clear their NPA dues in two weeks.
A bench comprising Justices RF Nariman and Indu Malhotra held that both the firms were ineligible to bid under amended Insolvency and Bankruptcy Code (IBC) but granted them a fresh opportunity after taking note of the CoC's plea that it does not want liquidation of Essar Steel.
According to Mint, the top court also diluted the role of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), adding that they would step in only after resolution plans were approved by a majority (66%) of the CoC in the eight-week deadline.
This litigation period will be excluded from the 270-day deadline prescribed for the resolution process under the IBC.
In September, ArcelorMittal had moved the Supreme Court challenging the NCLAT's ruling that Numetal's second bid was eligible but the same by ArcelorMittal would qualify only if it clears all outstanding dues of the defaulting firms it was previously associated with.The company argued that it was eligible for bidding as at the time of putting in its bid it was no longer promoter of Uttam Galva or KSS Petron. Furthermore, ArcelorMittal reportedly wanted the dues repayment to be dependent on bankers negotiating exclusively with it for Essar Steel.
"It's a vindication of the stand taken by the committee of creditors and one must give credit to the fact that they have stuck to their guns on this one because ultimately the Supreme Court has validated what their initial position was," Suharsh Sinha, partner at AZB & Partners, told BloombergQuint.
Numetal's first bid had been rejected by Essar Steel's lenders due to the 25% share owned by Rewant Ruia, the son of Essar Steel founder Ravi Ruia, since he was deemed a related party. The Insolvency and Bankruptcy Code (IBC) doesn't allow the participation of bidders connected to companies that have defaulted on debt. JSW Steel bought out this contentious stake ahead of the second bidding round.
ArcelorMittal's ineligibility in the first round stemmed from the fact that it had sold its 29% stake in Uttam Galva, which was also facing insolvency proceedings, just weeks before submitting its bid for Essar Steel.
Under Section 29A of the IBC, promoters of companies which have been classified as non-performing assets for over a year cannot participate in the resolution process of any company unless the dues are repaid. Both contenders had since been challenging their ineligibility, while questioning each's others eligibility, at different courts. The latter boasts the third biggest debt pile (around Rs 49,000 crore) among the first 12 companies identified by the RBI for insolvency proceedings last June.
Last month, while challenging NCLAT's ruling, ArcelorMittal also sweetened its bid to Rs 42,000 crore. Thereafter, Numetal, which had offered Rs 37,000 crore, asked the Supreme Court for a chance to match ArcelorMittal's bid. The third contender in the race for Essar Steel, Anil Agarwal-led Vedanta Group, has reportedly offered around Rs 30,000-35,000 crore.
Edited by Sushmita Choudhury Agarwal