Essar Steel auction: NCLAT to hear petitions from ArcelorMittal, Numetal & lenders today

The National Company Law Appellate Tribunal (NCLAT) hearing on Thursday will mark  yet another phase in the contentious race for Essar Steel.

Apart from listening to petitions from Numetal and ArcelorMittal — both of whom are arguing for their,  and against each other's, eligibility to bid for Essar Steel — the Tribunal may also be approached by the lenders.

The lenders will seek the Tribunal's opinion on ArcelorMittal's move to transfer Rs 7,000 crore to an escrow account in State Bank of India, as an indication of its "commitment to India and Essar Steel".

The lenders though would want to understand if this "commitment" is enough to make ArcelorMittal's bid for Essar Steel eligible.

The banks had earlier asked both Numetal and ArcelorMittal to clear dues  — of companies connected to them — to become eligible. ArcelorMittal has instead chosen to park the money in an escrow account.

The eligibility hurdle

ArcelorMittal was asked to clear dues of Uttam Galva Steel and KSS Petron, both of which had defaulted on loan repayments. In the case of Numetal, the VTB Capital-led consortium was held liable to clear Essar Steel's loans amounting to over Rs 40,000 crore.

The resolution professional overseeing the Essar Steel auction, had argued that ArcelorMittal's investment in the two companies made its bid for Essar Steel ineligible under the Clause 29A of the Insolvency and Bankruptcy Code.

The Clause 29A bars promoters of defaulting companies from bidding for stressed assets. The Clause also bars "connected persons."

Numetal's minority shareholder Rewant Ruia,  son of Essar Group co-founder Ravi Ruia, was deemed as a connected person. And thus Numetal was asked to clear dues of Essar Steel.

Numetal's argument

But Numetal has argued against these observations. It first moved the NCLAT against a lower court's decision to give ArcelorMittal time to clear dues of Uttam Galva Steels.

Later, it added one more petition, this time questioning the lenders decision asking Numetal to clear Essar Steel's dues. Numetal has argued that its shareholders don't have any outstanding dues, and that Aurora Enterprises - represented by Rewant Ruia - has been bought out by other shareholders of Numetal. Thus, it argued, there was no question of clearing dues of Essar Steel.

Interestingly, Numetal is now batting for the bids submitted in the second round of bidding to be opened. Both Numetal and ArcelorMittal - along with Vedanta Resources - had put in bids in the second round after the first round proposals were termed ineligible by the resolution professional.

The Ahmedabad bench of NCLT had later though asked the lenders to give Numetal and ArcelorMittal time to rework their first round bids; and also termed the invite for second round, invalid.

But Numetal now wants the second round bids to be considered as Aurora Enterprises had by then exited the consortium.

ArcelorMittal's case

While the world's largest steelmaker has shown its readiness to pay off the dues as a 'goodwill gesture,' it has hesitated to go the whole distance.

By choosing to transfer Rs 7,000 crore in an escrow account, ArcelorMittal is making sure that "it's not going to pay for nothing," as one executive from the industry pointed out. By keeping the money in the escrow account, it has the option to take back the amount if its bid for Essar Steel remains ineligible.

The question is - will the "commitment" convince the lenders, and the Tribunal.

Moreover, the Tribunal may also comment on the role that promoters of Uttam Galva Steels will have to play. There have been questions on the possible change of ownership of Uttam Galva Steels, if ArcelorMittal's payment is accepted to clear dues.

But promoters of Uttam Galva have indicated that they have neither heard from ArcelorMittal, nor from the lenders.

The hearing on Thursday is expected to be dominated by arguments from different stakeholders. The Tribunal may take some more time to come to a decision and pass an order.