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NCLAT Orders Status Quo on Essar Steel Insolvency For 2 Months

Essar Steel is being auctioned after the company defaulted on payment of about Rs 49,000 crore loan to lenders.The corporate insolvency resolution process deadline for Essar Steel is May 28.


Updated:May 22, 2018, 11:00 PM IST
NCLAT Orders Status Quo on Essar Steel Insolvency For 2 Months
Essar Group logo outside the headquarters in Mumbai. (Reuters)

New Delhi: The National Company Law Appellate Tribunal (NCLAT) on Tuesday ordered a status quo on insolvency of Essar Steel for two months as it admitted petitions of NuMetal and ArcelorMittal over the bidding eligibility.

The NCLAT on Tuesday directed the resolution professional (RP), committee of creditors (CoC) and the NCLT not to pass any order in the ongoing insolvency process of Essar Steel, including liquidation of the debt-ridden firm till its further order.

The appellate tribunal admitted the cross petitions filed by two resolution applicants — Russia's VTB Capital-based NuMetal and ArcelorMittal — challenging their disqualification for Essar Steel.

"Appeals admitted. List for hearing on July 23," said an NCLAT bench headed by Chairman Justice S J Mukhopadhaya.

It further said, "Until further order, RP, CoC and adjudicating authority (NCLT) will not pass any order including order of liquidation of corporate debtor."

The corporate insolvency resolution process deadline for Essar Steel is May 28.

The appellate tribunal further directed the RP of Essar Steel to ensure day-to-day running of the company.

The NCLAT would conduct daily hearing from July 23 on the matter.

Under the IBC code, the insolvency proceedings have to be completed within 270 days. This period is ending on May 28 following which the Insolvency and Bankruptcy Code (IBC) mandates liquidation of the debt-ridden company.

Commenting on the development, an ArcelorMittal spokesperson said the company has appropriately addressed the questions of the CoC over its eligibility.

"We hope that the subsequent court hearing now scheduled for July will provide a fair and satisfactory conclusion to this process and recognise the significant efforts we have made and the commitment we are showing to India and Essar," the company said in a statement.

Essar Steel is being auctioned after the company defaulted on payment of about Rs 49,000 crore loan to lenders.

During the proceedings, senior advocate Harish Salve, appearing for ArcelorMittal, submitted that there was no need to go for the second round of bidding as it has already cleared Rs 7,000 crore dues of Uttam Galva and KKS Petron.

However, senior advocate Mukul Rohatgi, appearing for NuMetal, asked the tribunal to allow to open the second round of bidding, in which it has placed over Rs 37,000 crore bid for Essar Steel.

"Why should not we open the second round of bid?" he said adding that the winner should be decided by selecting the maximised bids.

He further said ArcelorMittal has not paid "Rs 7,000 crore but kept into an escrow account. They have kept it there ... if they are (ArcelorMittal) successful bidder, then they would pay. "

Salve requested the court to decide first on the disqualification of the first round of bidding and not to go for the second round of bidding.

Both NuMetal and ArcelorMittal put in a second round of bids after the first bids were opined to be invalid -- NuMetal because of it being 25 per cent owned by Aurora Trust of Ruia family, the promoters of Essar Steel; and ArcelorMittal because of it being holding shares in loan defaulting companies Uttam Galva Steel and KSS Petron.

The insolvency and bankruptcy law bars participation by promoters of delinquent companies in bidding for assets being auctioned.

For the second round of bid, VTB Bank sought to severe ties with Ruia family by buying out Aurora Trusts stake in NuMetal.

ArcelorMittal transferred Rs 7,000 crore to an escrow account of SBI to clear outstanding loans of Uttam Galva and KKS Petron.

In the second round of bidding, mining baron Anil Agarwal's Vedanta Resources also joined the race. Also, JSW joined NuMetal for the bid.

In a statement, NuMetal said, "Numetal has offered to maximise the debt recovery for the Indian lenders with a Rs 37,000 crore cash offer besides injecting significant amount in the company and in opex and capex.

"We believe we are an eligible resolution applicant from Day one as per IBC and neither NuMetal nor any of its shareholders including Aurora has any overdue loans with Indian lenders. In any case, other shareholders of NuMetal have bought out Aurora shares while maximising the bid offer in the second round and hence we are fully eligible.

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