Numetal’s move to drop Rewant Ruia’s Aurora Enterprise as a shareholder of the company to turn it into an eligible resolution applicant for Essar Steel may not be acceptable to the lenders.
After the first bid of Numetal, majority owned by Russia’s VTB Bank, and that of ArcelorMittal India Pvt Ltd (AMIPL) was rejected by the resolution professional (RP) of Essar, Numetal shareholders bought out the 25 per cent stake Aurora held before making the second bid.
“This (change in corporate structure) may not be acceptable to the committee of creditors (CoC),” a major lender, who is part of the CoC of Essar Steel, said.
According to the lender, no change in the composition of the resolution applicant was possible as no fresh request for proposal (RFP) was sought during the second bid.
As no fresh RFP, which outlines the terms of the bid, was sought, the second bid could not have been treated as a fresh bid which may allow resolution applicants to come up with a different corporate structure other than originally submitted.
A source close to Numetal said the question of eligibility would be decided by the appellate company law tribunal and it is not in the purview of the CoC any more.
The NCLAT in its order dated May 22 had said it would adjudicate whether the resolution applicants are eligible under section 29A and whether the plans are according to the law.
Hearing on the matter is expected to start expeditiously when the NCLAT resumes after the summer vacation from July 2.
The source also pointed out that Numetal had a submitted resolution plan and not Aurora.
Lenders want a quick resolution to the process as they are losing out as much as Rs 17 crore a day, which translates to Rs 510 crore a month cumulatively because of the delay, the senior lender claimed.
The second bid is yet to be opened by the CoC even as Numetal’s advocate Mukul Rohatgi had called for opening it during a hearing before the NCLAT.
The National Company Law Tribunal, Ahmedabad, in its order of April 29, had asked the RP/CoC to reconsider the first bid and pointed to the payment of overdue amount as a “cure” for ineligibility and called the second bid, submitted on April 2, legally invalid.
Following the order, the lenders asked Numetal and AMIPL to cure their ineligibility. While AMIPL transferred Rs 7,000 crore to an escrow on account of its due arising out of two non-performing assets, Numetal shareholders bought out Aurora.
The CoC then approached the NCLAT, seeking direction on whether to accept AMIPL’s proposal as it did not pay up the due but merely transferred the amount. Moreover, AMIPL had said the payment was linked to it becoming a successful applicant for Essar.
Numetal, which dropped Aurora and brought in JSW Steel as a step-down subsidiary, while submitting the second bid on April 2, challenged the CoC’s attempt to provide a cure to AMIPL at the NCLAT.
If the cure offered by Numetal does not pass the legal muster, it has to pay the overdue.
On March 23, the RP disqualified resolution applicants and rejected the plans on the ground of eligibility under Section 29A of Insolvency & Bankruptcy Code, 2016.
The RP counsel had argued that Rewant Ruia is deemed to be acting in concert with Ravi Ruia, his father and the promoter of Essar Steel, a non-performing asset for more than a year prior to the start of the corporate insolvency resolution process.
Accordingly, the RP declared Rewant Ruia, who is acting jointly with the other shareholders of Numetal for the purpose of submission of the resolution plan, as ineligible under Section 29A, subsection (c) and (h) and also disqualified Numetal.
However, Numetal had disclosed during the presentation of the first plan that if any of the shareholders are found to be ineligible, the rest will buy him out.
Before the submission of the second bid, three other shareholders – VTB, Indo International Trading and TPE – bought out Aurora’s stake.
Source: The Telegraph, June 18, 2018