NCLT declares rebid for Essar Steel invalid

New Delhi: ArcelorMittal and Nu Metal will get another chance to prove their credentials to take over Essar Steel, facing insolvency proceedings in bankruptcy court.

The Ahmedabad bench of the National Company Law Tribunal (NCLT) on Thursday declared invitation of the second round of bids for Essar Steel as invalid, brightening the chances for these two companies to another chance to acquire the bankrupt steel maker.

This has, however, put a question mark on Anil Agarwal-led Vedanta Resources’ prospects of taking over the steel firm. Vedanta had bid for Essar Steel in the second round.

ArcelorMittal, the world’s largest steel maker, and Nu Metal, a Russian consortium led by VTB Capital, were the only companies that had submitted bids for Essar Steel on February 12 in the first round. But both bids were rejected by the SBI-led consortium of creditors and the resolution professional (RP) found them ineligible under the Insolvency and Bankruptcy Code (IBC). This prompted the RP to call for a rebid.

But both the bidders contested disqualification in the first round in the NCLT.

NCLT has asked the committee of creditors (CoC) and the resolution professional to have a relook at both the bids from the first round as the due process was not followed while assessing its eligibility. Specifically, the NCLT pointed at violations of Section 30(4) of the Insolvency & Bankruptcy Code by the lenders. Under this section, a motion has to be passed through a vote supported by at least 75 per cent of the lenders.

Both bids now have to be shared and evaluated by the CoC before taking any decision, the tribunal ruled.

Bids by ArcelorMittal and Nu Metal were considered ineligible because the IBC does not allow related parties and promoters of a defaulting company to submit a resolution plan.

The resolution professional had also declared ArcelorMittal’s bid for Essar Steel ineligible due to its stake in insolvent Uttam Galva Steel. As per section Section 29A of IBC, promoters of insolvent companies and related and connected people are barred from participating in the resolution process for insolvent entities.

Nu Metal got disqualified as it had a 25 per cent shareholding from Aurora Enterprises, a trust in which Ravi Ruia's son Rewant was the major beneficiary. Promoters or related parties are not allowed to bid under IBC unless they clear all dues in full.

For ArcelorMittal, acquisition of Essar Steel would give it a foothold in the Indian market, which its has been trying to enter for the last few years without success. Similarly, Nu Metal is also looking at participating in the growing Indian metal business.

The 10-million tonne Essar Steel, which owes around Rs 49,000 crore to banks, is the biggest asset on the block right now. It is one of the 12 companies shortlisted by the Reserve Bank of India for immediate insolvency last year.

In the first round of bidding for Essar Steel, six companies submitted EoIs, including ArcelorMittal, Numetal, Nippon Steel, Tata Steel, Vedanta Resources and SSG Capital. But the Tatas withdrew, as its plate was full, the company being the highest bidder for two large steel firms, Bhushan Power and Bhushan Steel.

Vedanta also decided against putting a financial bid as it wants to focus on Electrosteel, for which Vedanta is the preferred bidder. The other two interested parties also did not put in their bids. Vendanta, however, decided to put in a bid in the second round.