The National Company Law Appellate Tribunal (NCLAT) on Tuesday reserved its order over a batch of petitions against ArcelorMittal's Rs 42,000-crore takeover bid for Essar Steel as well as the distribution of funds among the creditors of the debt-ridden company.
During the proceedings, senior advocate Kapil Sibal appearing for Standard Chartered Bank, a secured creditor of Essar Steel, questioned the addition of working capital in the final resolution amount.
"Working capital is revenue generated from going concern. It can not be added," said Sibal adding that "ArcelorMittal cannot touch it. It's not their money".
According to him, the Insolvency & Bakruptcy Code (IBC) does not have such provisions of adjusting working capital and it was only RFP (request for proposal), which has provision for it.
"You can not adjust working capital. It's neither in IBC regulations, then how they can have it in RFP," he added.
According to him, Rs 42,000 crore coming should not be touched and the profit made by Essar Steel should be left with the company only.
According to him, the argument that it's an accounting thing cannot stand here.
"ArcelorMittal bid should be Rs 42,000 crore plus Rs 4,000 crore, which is Rs 46,000 crore," he added.
Essar Steel has reported an Ebitda (earnings before interest, tax, depreciation and amortization) of around Rs 4,000 crore during the over 600 days of insolvency period.
"ArcelorMittal is now giving us Rs 43,000 crore, which means it is taking away Rs 3,000 crore," Sibal said.
The bench observed that there was a "magical accounting".
"We will see it and give our own accounting if magic accounting is not satisfying us. We are looking at the method," said the NCLAT bench.
Meanwhile, senior advocate Harin P Rawal, appearing for Essar Steel Asia Holdings, a shareholder of Essar Steel, raised the issue of ineligibility of ArcelorMittal under section 29 (A) of the Insolvency & Bankruptcy Code.
According to Rawal, ArcelorMittal Chairman and CEO L N Mittal has stake in two defaulting firms owned by his brothers as a promoter.
"Whatever be the share, the fact is that he (L N Mittal) was holding share as a promoter and hence he is ineligible under section 29 (a) of IBC," he said.
Senior advocate U K Chaudhary appearing for Prashant Ruias raised the issue of subrogation.
According to him, SBI cannot claim the money from Ruias -- who had given a personal guarantee to the bank for loans of Essar Steel.
"As on date, he is not a creditor of the company, therefore there is no question for me today to get involved in the resolution plan. So my rights accrued to him, only if the lenders succeed in invoking my guarantee successfully then by law of subrogation, I would then become the creditor of Essar Steel, in place of the financial creditor, who has invoked the my guarantee," said Chaudhary.
According to him, those rights which would come into future can not be eliminated by this resolution plan.
"When the banks has already started resolution, then the banks have no rights to proceed against him (in DRT)," he said.
On this, appellate tribunal observed that banks cannot take two actions for the same debt simultaneously.
On Monday, ArcelorMittal had told NCLAT that it would pay Rs 42,000 crore, including a minimum of guarantee of Rs 2,500 crore as working capital, for acquiring debt-laden Essar Steel under the insolvency process.
Senior advocate Harish Salve had contended that during the resolution period, Essar Steel had a profit of Rs 3,500 crore and the company is already providing Rs 2,500 crore as working capital.
"As ArcelorMittal has assured a working capital of Rs 2,500 crore, a profit of Rs 3,500 crore means that ArcelorMittal will make available a sum of Rs 43,000 crore to the creditors of the company," Salve had said.
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