Essar Steel bidders caught in eligibility rule web - Report
Telegraph India reported that strategies deployed by ArcelorMittal and Nu Metal & Steel to extricate themselves from the legalese of the dreaded Section 29A of the Insolvency & Bankruptcy Code, 2016, will determine the future of Essar Steel's corporate resolution process that has rolled into a decisive phase. As consultancy Grant Thornton and solicitor firm Cyril Amarchand Mangaldas scrutinise the eligibility of the bids before they are opened by the committee of creditors, arguments are being made from both sides of the aisle to establish the legal validity of one's bid while trashing the other.
Section 29A (c) reads as follows: "A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor."
However, there is an escape route: "Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan," the section adds.
It is being argued that the bid of the world's largest steelmaker may run into rough weather as it was the promoter of bankrupt Uttam Galva Steel Ltd when it submitted an expression of interest for Essar Steel. Moreover, Lakshmi Niwas Mittal, who is the chairman and CEO of ArcelorMittal and also its largest shareholder, had a personal stake in KSS, whose Indian subsidiary is KSS Petron Pvt Ltd, a bankrupt company engaged in the oil and gas sector. In order to adequately steer clear of Section 29A, ArcelorMittal sold shares in Uttam Galva and KSS Petron days before the submission of the financial bid for Essar Steel and hoped by doing so the ineligibility criteria in the code would not apply to them.
The presence of Rewant Ruia, son of Ravi Ruia who is founder of Essar Steel along with his brother Shashi in the consortium with VTB Capital, could muddle the water for Nu Metal. If Rewant Ruia is held part of Essar's promoter group, Nu Metal had to pay the overdue amount to become eligible for the Essar bid. It did not. To extricate itself from the pickle, Rewant Ruia was made a beneficiary of an offshore trust based in Mauritius, with no links to the management of any Ruia companies. The trust is said to be not a promoter group of any Ruia company either. Moreover, it is being pointed that the trust will hold minority stake (25 per cent) with no board representation or management control.
Source : Telegraph India