Though the Committee of Creditors (CoC) for Essar Steel has voted overwhelmingly in favour of ArcelorMittal’s bid, the Ruias of Essar Steel are hopeful that the ruling of the National Company Law Appellate Tribunal (NCLAT) in the Binani Cement matter will help its case, currently before the Ahmedabad bench of the National Company Law Tribunal (NCLT). In the Binani case, the NCLAT ruled that “maximisation of value of assets of the ‘Corporate Debtor’ and thereby for all creditors” was at the heart of the Insolvency and Bankruptcy Code (IBC) that is administered through the NCLT/NCLAT. The NCLAT further ruled, “one cannot balance interest of all stakeholders, if resolution maximises the value for a or a set of stakeholders such as ‘Financial Creditors’ … one or a set of stakeholders cannot benefit unduly … at the cost of another”. Put this way, the Ruia offer looks like it has a better chance than the ArcelorMittal one, even though the CoC has approved the latter. While ArcelorMittal has bid Rs 39,500 crore of upfront cash, Rs 8,000 crore of capital infusion and Rs 2,500 crore of working capital for Essar Steel, the Ruias made a Rs 54,389 crore bid the day the CoC cleared ArcelorMittal’s bid. Not only does the Ruia offer maximise value, it gives a better deal to the operational creditors. This suggests that, no matter how the NCLT rules on the matter, the NCLAT is likely to rule in favour of the Ruia offer.
There are, however, several reasons why the courts need to be cautious about adopting this approach, not the least of which is the fact that this goes against the spirit of the IBC, to keep defaulters from getting back their companies. If the Ruias were serious, why didn’t they clear their dues so far and then bid for Essar Steel; indeed, till the Supreme Court ruled against it, the Ruias were trying to bid through a front company called Numetal, to obviate the need to clear their dues first. Even now, while ArcelorMittal paid Rs 7,469 crore to clear the dues of Uttam Galva as part of the IBC stipulation that group company debt has to be paid off first, the Ruias have made no mention of clearing other group company dues. And while the Ruias are depending upon Section 12A of the IBC that allows an insolvency petition to be withdrawn by the lenders—it is hoping the courts will direct the lenders to withdraw their petition—this rule is applicable only till the time the bidding process begins; in this instance, not only had the process begun, with the CoC voting for ArcelorMittal, it had even come to an end. If the courts allow the Ruias’ last-minute bid to be accepted, this will vitiate the spirit of IBC since it means anyone can come in at any stage of the bid and try and hijack it. With the Supreme Court also examining the challenge to RBI’s February 12 circular which, if accepted, will also vitiate the IBC process, India’s new-found hope for quick resolution of bank NPAs has just hit a big speed-breaker; it is to be hoped it doesn’t get completely derailed.