Essar Steel insolvency: Spirit of 29A must be upheld, says ArcelorMittal

A day after JSW Group Chairman Sajjan Jindal made an oblique reference to L N Mittal-led ArcelorMittal by saying promoters of defaulting firms should not be allowed to bid for stressed assets only because they had sold their investments in the defaulting entities, the world’s largest steelmaker responded by pointing towards the “spirit” of Section 29A of the Insolvency and Bankruptcy Code (IBC).
The firm said, “We agree wholeheartedly with comments made in the Indian media that the spirit of 29A must be upheld. One should review statements made by the finance minister when the article was introduced. It makes clear that its purpose is to prevent previous defaulters from regaining control of the assets they have bankrupted at a haircut. Clearly, that has no relevance to ArceloMittal’s bid for EssarSteel.”
Finance Minister Arun Jaitley’s statements that ArcelorMittal is referring to on the amendment to the IBC was made during discussions in the Rajya Sabha. The minister had said that if the government did not have such a broad exclusion list, then the same people, related persons, who ran the company to the ground would come back to buy the stressed asset at a 40-50 or 60 per cent discount.
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The government had hence introduced Section 29A to debar existing promoters from bidding.
However, the person will be eligible to submit a resolution plan if he/she makes payment of all overdue amounts with interest and charges relating to the non-performing asset (NPA) accounts before submission of the plan. On Monday, Jindal said on the sidelines of a press conference, “In the spirit of the law, it is not fair to allow promoters of a defaulting firm to participate. I will be surprised if that kind of a thing is permitted.”
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He also said, “If the law itself is changed to allow a defaulter to bid, then it is fine. But when the IBC says that the promoter of a defaulter is not allowed to bid, and then that promoter cures himself by just selling the shares, then that is a mockery of the system.” ArcelorMittal had sold its shares in Uttam Galva, a NPA for more than a year, to make its eligible ahead of the bid for Essar Steel. Further, before submitting the resolution plan for Essar Steel, L N Mittal sold his personal shareholding in KazStroy Services (KSS) of Kazakhstan, an oil infrastructure provider company, which in turn had a 100 per cent stake in KSS Petron, which is facing insolvency proceedings.
The Essar Steel rebid is on April 2. JSW had expressed interest in bidding for Essar Steel in the second round, but lenders had decided against allowing new bidders to join the fray in the rebid. Only those who have submitted expression of interest earlier can participate in the rebid.

Essar Steel bid heats up with Sajjan Jindal taking on ArcelorMittal

JSW Group Chairman Sajjan Jindal on Monday said promoters of defaulting firms should not be allowed to bid for stressed assets merely because they had sold their investments in defaulting entities. Mittal was hinting at ArcelorMittal’s attempt to bid for Essar Steel, a stressed asset.
To qualify as a bidder, ArcelorMittal and its promoter L N Mittal had sold stakes in two defaulting companies, Uttam Galva Steels and KSS Petron. The two companies owe a total of Rs 60 billion to lenders, led by State Bank of India (SBI).
“In the spirit of the law, it is not fair to allow promoters of a defaulting company to participate. I will be surprised if that is permitted,” Jindal said.
“If the law itself is changed to allow a defaulter to bid, then it is fine. But when the Insolvency and Bankruptcy Code (IBC) says that the promoter of a defaulter is not allowed to bid, and then that promoter cures himself by just selling the shares, then that is a mockery of the system,” he added.
Jindal said it was important to uphold the spirit of the law because shareholders invested in companies looking at the credibility and track record of the promoters.
JSW has already lost out to Tata Steel in its bid for Bhushan Steel. Tata Steel made a bid of about Rs 350 billion, almost Rs 50 billion more than JSW.
“We could not express interest for Essar Steel as we were then bidding for Bhushan assets. So we asked the lenders whether we could bid, but in their discretion they did not want us. Perhaps, the banks do not want more money,” said Jindal.
Last week, the committee of creditors rejected bids for Essar Steel by Numetal, a subsidiary of Russian VTB Bank, and ArcelorMittal after both failed the eligibility test. The lenders’ committee also decided to keep new bidders such as JSW Steel at bay and sought a second round of bids only from those companies that had submitted their expressions of interest (EoIs) before the first round.
Of the seven companies that submitted EoIs, only Numetal and ArcelorMittal had bid in the first round.
The fate of ArcelorMittal’s bid will now be decided by the National Company Law Tribunal in Ahmedabad, as both Numetal and the Mittal company have moved the tribunal. The hearing is slated for Tuesday.
Corporate lawyers said legal opinions received by the resolution professional (RP) of Essar Steel from law firm Cyril Amarchand Mangaldas (CAM) and senior counsel Darius Khambata differed on the eligibility of the bid made by ArcelorMittal.
Legal opinion taken by both Numetal and ArcelorMittal from several former judges and retired government law officials have also differed, thus setting the stage for prolonged litigation.
While CAM said ArcelorMittal must pay the dues of the lenders to Uttam Galva Steels and KSS Petron to become eligible for bidding, Khambata was of the opinion that it was not required as long as ArcelorMittal and Mittal sold stakes in Uttam Galva and KSS Petron, respectively, and were declassified as promoters.
“The Section 29A of the IBC provides a cure for the defaulting promoter to become eligible by paying a company’s dues and not by selling its shares. This will be finally decided by the Supreme Court,” said a senior member of JSW’s legal team.