The Supreme Court on Thursday directed rival claimants ArcelorMittal India Private Ltd (AMIPL) and Numetal to clear their overdue loans linked to non-performing assets within two weeks to become eligible to bid for Essar Steel India Ltd (ESIL), which owes around Rs 49,000 crore to the banks.
The apex court asked the committee of creditors (CoC) of ESIL to decide on their bids, should they clear the dues, within eight weeks thereafter. If no resolution is found, including that offered by Vedanta, in that time period, ESIL will face liquidation, it said.
The bench of justices R.F. Nariman and Indu Malhotra found AMIPL and Numetal falling foul of Section 29A of the Insolvency and Bankruptcy Code, 2016 but still allowed them a chance to become eligible by paying up at the plea of CoC by exercising its extraordinary constitutional powers under Article 142 that allows the top court to pass any direction in the interest of justice.
Under 29A, companies/individuals cannot submit a resolution plan unless they clear all their loan accounts that has turned NPA for more than a year. The court found AMIPL to be in violation of section 29A(c) for Uttam Galva Steels and KSS Petron and Numetal for Essar Steel itself, a significant setback for the latter.
It appears that Numetal has to pay Rs 37,558 crore in principal and interest and Rs 1,688.27 crore in penalties (Rs 39,246.27 crore) to become eligible to bid for Essar. The requirement for AMIPL will be around Rs 7,000 crore.
The apex court’s verdict assumes significance in the way it interprets Section 29A. “Great care must be taken to ensure that persons who are in charge of the corporate debtor for whom such resolution plan is made do not come back in some other form to regain control of the company without first paying off their debt,” the judgment read.
Earlier, the CoC and the resolution professional for ESIL had held both ArcelorMittal and Numetal ineligible in their first bids and called for a second bid. Both companies submitted new plans but also challenged the decision before the National Company Law Tribunal, Ahmedabad.
Numetal was held ineligible by the CoC and the resolution professional because Rewant Ruia, son of Ravi Ruia and the promoter and owner of ESIL, had 25 per cent share in the company. The NCLT did not adjudicate on the ineligibility but asked the CoC to give AMIPL and Numetal time to pay their overdue amounts.
Both bidders challenged the order in the NCLT tribunal, which held AMIPL ineligible both in the first and second bids for non-payment of dues on account of Uttam Galva Steels and KSS Petron.
However, it held Numetal ineligible for the first bid but eligible for the second bid because Ruia sold his shares to other partners, Russian companies VTB and TPE and the UAE’s Indo. AMIPL’s revised bid now stands at Rs 42,000 crore compared with Numetal’s Rs 37,000 crore.
The apex court overturned the NCLAT order and held Numetal ineligible for the second bid despite dropping Rewant. It grounded the argument on two factors. First, the earnest money of Rs 500 crore for bid submission was paid by Ruia and it continued to remain deposited during the second bid.
Second, it found that all the changes in Numetal’s shareholding from the inception to the submission of the second bids were a ploy to avoid paying the overdue.
“Whether the first or second resolution plan is taken into account, both would be hit by Section 29A(c), as the looming presence of Rewant Ruia has been found all along, from the date of incorporation of Numetal, till the date of submission of the second resolution plan,” the judgment read.
