The bids of both Numetal, a VTB Bank majority company with Ruias as minority partner, and ArcelorMittal for Essar Steel have failed the eligibility test of the legal advisors appointed by the resolution professional as both bidders had connections to non-performing assets (NPAs) in India. The committee of lenders is expected to meet the next few days to take a call on the fate of the company. As per the IBC procedures, the final decision will be taken by the NCLT.
If the bids are ultimately rejected, this would mean that either or both ArcelorMittal and Numetal may move the courts, as both think they are eligible for bidding under the IBC, 2016. Both bids were backed by opinions from noted legal firms, with Numetal taking advice from former Supreme Court judges and former Indian government law officers.
Cyril Amarchand Mangaldas and Grant Thornton did the legal eligibility test on both bids. When contacted, a Numetal official said the company has not yet heard from the RP. An ArcelorMittal spokesperson declined to comment.
The rejection of bids came after the IBC was amended recently, through an ordinance, to keep out defaulting companies and their promoters from participating in the auction for stressed assets through the NCLT process.
Lenders had clearly said they would look at the promoter status at the time of company turning into a NPA and not when the shares were sold by a promoter just to become eligible for the bidding. But that did not deter either Mittal or the Ruias from bidding.
Lose-Lose deal
Numetal, ArcelorMittal fail to clear legal test
Both bidders had connections with NPAs
ArcelorMittal was promoter of Uttam Galva
LN Mittal promoter of KSS Petron
ArcelorMittal/LNM sell stake before Essar bidding
Ruia family member held 25% in Numetal via Trust
Numetal may move court against legal test result
Lenders may call for bids again According to a filing with the BSE, ArcelorMittal Netherlands BV held 29.05 per cent stake in Uttam Galva Steel as a foreign promoter at end of December 2017. The Miglani family and its companies held 31.82 per cent stake in Uttam Galva, which has defaulted on loans taken from lenders. It is now a non-performing asset (NPA) and is facing the NCLT proceedings under the IBC, 2016.
In a February 7 filing with stock exchanges, however, Uttam Galva said that the entire shareholding held by ArcelorMittal Netherlands BV has been transferred to Sainath Trading Company Private Limited by way of inter-se transfer for one rupee a share. Consequently, the co-promotion agreement dated September 4, 2009 among certain shareholders has been terminated. This, according to legal opinion taken by Numetal, makes ArcelorMittal ineligible under Section 29A (c) of IBC 2016.
It is not allowed to submit a resolution plan as it is a promoter of Uttam Galva, which is classified as a non-performing asset by banks.
"ArcelorMittal's own conduct establishes this, inasmuch as it is selling the equity shares held by it in Uttam Galva only after the coming into effect of Section 29A," the legal opinion taken by Numetal from a former Indian government law officer said. This opinion, along with those from former Supreme Court judges, was submitted to the RP.
As per Section 29 A (c), the promoter of a debtor that has been an NPA for at least a year before the commencement of NCLT proceedings, is ineligible to submit a resolution plan.
ArcelorMittal had earlier said that its bid for Essar Steel meets all the eligibility criteria. However, as per the co-promotion agreement signed with the Miglani family in 2009, ArcelorMittal Netherlands BV was having the right to appoint half the non-independent directors of Uttam Galva. Besides, under that agreement, a number of decisions relating to Uttam Galva such as business plans of company, corporate restructuring, employee and director compensation, capital expenditure, loans and investments exceeding a threshold etc required the consent of an ArcelorMittal representative.
Legal opinion taken by Numetal said the only procedure provided for such an ineligible person to become eligible to submit a resolution plan is already provided in Section 29A -- that is, if the person makes payment of all overdue amounts with interest thereon and charges relating to the NPA account before submission of resolution plan. "The method adopted by Mittal to qualify itself to submit a resolution plan by selling 29 per cent stake in Uttam Galva is not a procedure prescribed under the Act,” the former law officer said. "The stratagem adopted by ArcelorMittal is a device to circumvent the mandate of 29A (c) of the IBC," the opinion, reviewed by this newspaper, said.
Earlier, domestic lenders, led by State Bank of India, had also asked L N Mittal, billionaire-promoter of ArcelorMittal, to repay a debt of Rs 13.40 billion taken by KSS Petron Private Limited after the latter defaulted on its loans in India. Mittal owned 33 per cent stake in KazStroyServices (KSS) of Kazakhstan, an oil infrastructure provider, in his personal capacity. KSS, in turn, holds 100 per cent stake in KSS Petron, which became an NPA in 2015. In this case also, Mittal sold the stake in KSS just before the bidding commenced for Essar Steel.
In the case of Ruias, Essar Steel had defaulted on bank loans, which led to the bankruptcy proceedings against the company. Ruias own 25 per cent stake in Numetal through a trust, while VTB Bank of Russia owns 75 per cent in Numetal along with other partners. Rewant Ruia, son of Essar group promoter Ravi Ruia, was named as the beneficiary of the trust. Essar Steel had defaulted to bank loans worth Rs 440 billion.
“The whole purpose of amendments to IBC was to keep out defaulters. And if they want to be in the race then they must clear outstanding dues. This is the government directive and we cannot go against it,” the CEO of a public sector bank had told this paper, asking not to be quoted.
SBI chairman Rajnish Kumar had earlier warned that promoters must clear their dues so that they can become eligible to bid for the stressed assets. But both Mittal and Ruias ignored the warning.
-- With Inputs from Bloomberg
If the bids are ultimately rejected, this would mean that either or both ArcelorMittal and Numetal may move the courts, as both think they are eligible for bidding under the IBC, 2016. Both bids were backed by opinions from noted legal firms, with Numetal taking advice from former Supreme Court judges and former Indian government law officers.
Cyril Amarchand Mangaldas and Grant Thornton did the legal eligibility test on both bids. When contacted, a Numetal official said the company has not yet heard from the RP. An ArcelorMittal spokesperson declined to comment.
The rejection of bids came after the IBC was amended recently, through an ordinance, to keep out defaulting companies and their promoters from participating in the auction for stressed assets through the NCLT process.
Lenders had clearly said they would look at the promoter status at the time of company turning into a NPA and not when the shares were sold by a promoter just to become eligible for the bidding. But that did not deter either Mittal or the Ruias from bidding.
Lose-Lose deal
Numetal, ArcelorMittal fail to clear legal test
Both bidders had connections with NPAs
ArcelorMittal was promoter of Uttam Galva
LN Mittal promoter of KSS Petron
ArcelorMittal/LNM sell stake before Essar bidding
Ruia family member held 25% in Numetal via Trust
Numetal may move court against legal test result
Lenders may call for bids again According to a filing with the BSE, ArcelorMittal Netherlands BV held 29.05 per cent stake in Uttam Galva Steel as a foreign promoter at end of December 2017. The Miglani family and its companies held 31.82 per cent stake in Uttam Galva, which has defaulted on loans taken from lenders. It is now a non-performing asset (NPA) and is facing the NCLT proceedings under the IBC, 2016.
In a February 7 filing with stock exchanges, however, Uttam Galva said that the entire shareholding held by ArcelorMittal Netherlands BV has been transferred to Sainath Trading Company Private Limited by way of inter-se transfer for one rupee a share. Consequently, the co-promotion agreement dated September 4, 2009 among certain shareholders has been terminated. This, according to legal opinion taken by Numetal, makes ArcelorMittal ineligible under Section 29A (c) of IBC 2016.
It is not allowed to submit a resolution plan as it is a promoter of Uttam Galva, which is classified as a non-performing asset by banks.
"ArcelorMittal's own conduct establishes this, inasmuch as it is selling the equity shares held by it in Uttam Galva only after the coming into effect of Section 29A," the legal opinion taken by Numetal from a former Indian government law officer said. This opinion, along with those from former Supreme Court judges, was submitted to the RP.
As per Section 29 A (c), the promoter of a debtor that has been an NPA for at least a year before the commencement of NCLT proceedings, is ineligible to submit a resolution plan.
ArcelorMittal had earlier said that its bid for Essar Steel meets all the eligibility criteria. However, as per the co-promotion agreement signed with the Miglani family in 2009, ArcelorMittal Netherlands BV was having the right to appoint half the non-independent directors of Uttam Galva. Besides, under that agreement, a number of decisions relating to Uttam Galva such as business plans of company, corporate restructuring, employee and director compensation, capital expenditure, loans and investments exceeding a threshold etc required the consent of an ArcelorMittal representative.
Legal opinion taken by Numetal said the only procedure provided for such an ineligible person to become eligible to submit a resolution plan is already provided in Section 29A -- that is, if the person makes payment of all overdue amounts with interest thereon and charges relating to the NPA account before submission of resolution plan. "The method adopted by Mittal to qualify itself to submit a resolution plan by selling 29 per cent stake in Uttam Galva is not a procedure prescribed under the Act,” the former law officer said. "The stratagem adopted by ArcelorMittal is a device to circumvent the mandate of 29A (c) of the IBC," the opinion, reviewed by this newspaper, said.
Earlier, domestic lenders, led by State Bank of India, had also asked L N Mittal, billionaire-promoter of ArcelorMittal, to repay a debt of Rs 13.40 billion taken by KSS Petron Private Limited after the latter defaulted on its loans in India. Mittal owned 33 per cent stake in KazStroyServices (KSS) of Kazakhstan, an oil infrastructure provider, in his personal capacity. KSS, in turn, holds 100 per cent stake in KSS Petron, which became an NPA in 2015. In this case also, Mittal sold the stake in KSS just before the bidding commenced for Essar Steel.
In the case of Ruias, Essar Steel had defaulted on bank loans, which led to the bankruptcy proceedings against the company. Ruias own 25 per cent stake in Numetal through a trust, while VTB Bank of Russia owns 75 per cent in Numetal along with other partners. Rewant Ruia, son of Essar group promoter Ravi Ruia, was named as the beneficiary of the trust. Essar Steel had defaulted to bank loans worth Rs 440 billion.
“The whole purpose of amendments to IBC was to keep out defaulters. And if they want to be in the race then they must clear outstanding dues. This is the government directive and we cannot go against it,” the CEO of a public sector bank had told this paper, asking not to be quoted.
SBI chairman Rajnish Kumar had earlier warned that promoters must clear their dues so that they can become eligible to bid for the stressed assets. But both Mittal and Ruias ignored the warning.
-- With Inputs from Bloomberg
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