Numetal and ArcelorMittal, both in the race for Essar Steel, had approached the NCLT after their bids were termed ineligible in the first round of bidding.
After going through the longest court session in the short history of the Insolvency and Bankruptcy Code, the Ahmedabad bench of the National Company Law Tribunal (NCLT) will continue hearing the pleas from Numetal and ArcelorMittal on Thursday.
The two companies, both in the race for Essar Steel, had approached the NCLT after their bids were termed ineligible in the first round of bidding, by the resolution professional (RP) overseeing the auction.
Both the companies, along with Vedanta Resources, bid in the second round. But bids can’t be opened until the NCLT rules on the pleas.
On Wednesday, the bench heard arguments from Numetal, ArcelorMittal and Committee of Creditors. The arguments started at 10.30 am and went on till 6 pm.
On Thursday, the lawyer representing the RP will put forward his case, and the bench may open the session for counter arguments.
The hearing is also seeing the clash of the country’s biggest lawyers. ArcelorMittal is represented by Abhishek Manu Singhvi, the Congress leader. Numetal is being represented by Mukul Rohatgi, the former Attorney General of India. Darius Khambatta represents the RP, while Solo Sorabjeee and Ravi Kadam spoke for the lenders. Janak Dwarkadas will take the stage for the resolution professional tomorrow.
While both the sides pushed the case of their eligibility, the two also argued against each other’s bids. The main ground of argument was based on the amendment in Insolvency and Bankruptcy Code that prevented promoters of a defaulting company from bidding for stressed assets.
The arguments
Numetal started the day's proceeding in the court "that was small and packed" as a source present there described it.
The following points were made -
1) Rewant Ruia is eligible to bid under section 29 (A) of the IBC.
This has been the sticky point for Numetal. According to the IBC, a promoter of a defaulting company is barred from bidding for a stressed asset. Given, Rewant Ruia is the son of Essar co-founder Ravi Ruia, he was deemed as a "connected person."
Rewant Ruia, it was argued, was never part of the Essar Group management. Rewant Ruia is only a beneficiary of the trust that owns 25 percent without any control at the board or at the management.
2) Numetal argued that even if the lenders are not in agreement, the company had given an option that included rest of the shareholders buying out Rewant Ruia and his Aurora Enterprises stake.
"Despite that, the bid was rejected to give time to ArcelorMittal, which was not eligible," an official close to Numetal alleged.
3) Numetal also argued that ArcelorMittal is not eligible even now as declassification of ArcelorMittal as promoter of Uttam Galva is "illegal, and violates loan agreement signed with lenders," a source recounted.
Numetal argued that selling the shares is not enough for ArcelorMittal to clear its name.
Otherwise, a promoter of any defaulting company can now sell his shares and become eligible.
ArcelorMittal's case
Alleging that the Ruias “carried out a series of sham transactions” to comply with section 29A of the Insolvency and Bankruptcy Code, ArcelorMittal argued that Numetal’s bid should be termed ineligible.
ArcelorMittal further alleged that VTB - whose VTB Capital is leading the Numetal consortium - is acting in collision with the Ruias.
“The application (of Numetal) is guilty of material suppression in failing to disclose the relationship between VTB and the Ruias and raises a genuine apprehension that VTB is acting as a front for the Ruias, including by way of deploying Ruia funds available with it to finance the 'purchase' of Numetal shares,” ArcelorMittal said.
“The contention that AEL is merely a passive investor in Numetal is also clearly a device, sham and a façade. This is evident from the manner in which Numetal and AEL (Aurora Enterprises) were all incorporated on the same date in Mauritius for the purpose of submission of a resolution plan… and further from the fact that the entire earnest money deposit of Rs 500 crores was funded by AEL and not by the other shareholders/constituents of Numetal,” said a source from the industry who was present at the hearing.
ArcelorMittal’s petition stressed on the following points -
1. Despite the 29A amendment, it can be “demonstrated that de facto control (of Numetal) remains with the Ruias despite the change in shareholding. The Ruias are the only shareholders with any relevant experience, when it comes to steelmaking."
2. There is substantial commercial inter-linkages between VTB and the Ruias. The Russian government is the single largest shareholder in both VTB and Rosneft, which recently purchased Essar Oil. VTB also played a significant role in the transaction. The Application is guilty of material suppression in failing to disclose the relationship between VTB and the Ruias.
3. RFP (request for proposal) conditions require that permission of the Committee of Creditors (CoC) should be obtained for any change in the composition of the bidding consortium, particularly when there is an accompanying change in control. This was not done.
4. VTB, ArcelorMittal argued, is in any event ineligible under the IBC (sub-clauses (i) and (f) of 29A) since it has been banned from trading and accessing the market regulators EU and US. Also, Numetal has also failed to make good faith disclosure on fines and cases against VTB’s units and senior officials.
Deadline concern
Ravi Kadam was the last to be heard on Wednesday, and he stressed that time was fast running out. "We should resolve the matter quickly," a source attending the hearing quoted Kadam.
The deadline for the resolution of Essar Steel is April 29.