Essar Steel bid: Resolution professional makes it tougher for the Ruias to make a comeback

Here's a fresh twist in the ongoing Essar Steel drama, even as the countdown to the April 2 deadline for the rebids kicks-off: The resolution professional has reportedly thrown in a "new legal addendum" in the request for proposal (RFP) before the re-bids come in that will leave Numetal with little choice but to drop Rewant Ruia from the consortium.

According to The Economic Times, the RFP prohibits any entity from transferring shares or management involvement directly or indirectly now or at any time in the future to the Ruias, or any connected persons. Any violation of this undertaking would lead to a cancellation of the bid. The bidder will reportedly have to sign an undertaking that "(I/we) have not and no person controlled by (me/us) has as of the date of this declaration, entered into any arrangement (whether written or verbal, contractual or otherwise) with any member of existing promoter group..." Tightening the noose further, the document states that trusts and the beneficiaries of such trusts will be considered as related parties.

Since Rewant is the son of Essar Steel co-promoter Ravi Ruia, this new postscript effectively means that Numetal has to exclude Rewant Ruia's Aurora Enterprise Mauritius in order to be considered eligible to bid for the 10 MT Essar Steel.

Numetal had previously claimed that if "public perception is a challenge because of Rewant Ruia's minority stake in Numetal, we're ready to change that". Antoine Chemali, a senior advisor at Numetal Mauritius, had gone so far as to say that if required the other shareholders were "ready to buy out" Rewant's 25 per cent stake. The other shareholders of this special purpose vehicle are VTB Capital, the private equity arm of the VTB Bank, Russian steel and engineering major TPE and Dubai-based Indo International, a steel trading firm. Sources close to Numetal have reportedly reiterated that the SPV will comply with all norms but also pointed out that the case is still pending with the National Company Law Tribunal (NCLT). Last Tuesday, the Ahmedabad bench of the bankruptcy court had adjourned the hearing on petitions filed by ArcelorMittal and Numetal challenging the disqualifications of their bids for debt-laden Essar Steel to April 4.

To remind you, Lakshmi Mittal-promoted ArcelorMittal India and Numetal Mauritius were the only two bidders for Essar Steel, which owes the banks more than Rs 45,000 crore. But the beleaguered firm's committee of creditors (CoC) had rejected both bids. The SBI-led consortium had said that both were ineligible under the provisions of Section 29A of the amended Insolvency and Bankruptcy Code (IBC). While Rewant was deemed a related party and, therefore, was not allowed to bid, ArcelorMittal's ineligibility stemmed from the fact that it had sold its 29 per cent in Uttam Galva, which is also facing insolvency proceedings, just weeks before submitting its bid for Essar.

Both companies had, nonetheless, moved NCLT against their disqualification and had also asked the Bench to defer the second round of bidding. However, Essar's CoC, represented by Darius Khambatta, had argued that as per the 270-day insolvency resolution timeline, the process should end on April 29, hence the re-bidding should be over at the earliest. Post the deadline, liquidation is the only option left. That is why the bench had given its nod to the April 2 deadline.

Since re-bids were only invited from the companies that had shown interest in the first round, speculation is rife that Vedanta may join the race this time round. Media reports also suggest that Sajjan Jindal-led JSW may join forces with Numetal, perhaps as a replacement for the Ruia trust. We will only know for sure when the resolution professional opens the fresh bids.

One thing is for sure: The latter is trying hard to avoid a repeat of the protracted legal battle that followed the first round. The revised RFP reportedly makes it clear that submitted resolution plans will be rendered ineligible if any of the above terms are breached, even if it gets the nod from Essar's committee of creditors or the adjudicating authority. Moreover, prior to such approval, the resolution professional "shall have the right to reject the resolution plan without any liability". Given the latest trend of bidding companies challenging the decisions of the RP - as happened with Binani Cement, Bhushan Steel, Essar Steel and now perhaps Electrosteel, too - perhaps all RFPs should contain a similar clause to preserve the sanctity of the Insolvency and Bankruptcy Code.

(With PTI inputs)