New Delhi: The Supreme Court Thursday granted one more opportunity to steel and mining major ArcelorMittal and Russia's VTB Bank-promoted NuMetal to bid for Essar Steel, provided the two pay off the non-performing assets (NPAs) of their related corporate debtors within two weeks.
A bench of Justices R F Nariman and Indu Malhotra, however, held that ArcelorMittal India Pvt Ltd and NuMetal Ltd were ineligible to file resolution plans for corporate debtor Essar Steel -- which had NPAs or bad debts amounting to Rs 45,000 crore -- as per the criteria laid down in the amended Insolvency and Bankruptcy Code (IBC).
The top court granted one more opportunity to the two bidders keeping in mind the submission of the Committee of Creditors (CoC), led by SBI and Standard Chartered Bank, that liquidation of Essar Steel would not be beneficial as its dues may remain unrealised.
"Acceding to this request (of CoC), in order to do complete justice under Article 142 of the Constitution..., we give one more opportunity to both resolution applicants to pay off the NPAs of their related corporate debtors within a period of two weeks from the date of receipt of this judgment, in accordance with the proviso to Section 29A(c)," said the bench in its 154-page verdict.
"If such payments are made within the aforesaid period, both resolution applicants can resubmit their resolution plans dated April 2, 2018 to the CoC, who are then given a period of 8 weeks from this date, to accept, by the requisite majority, the best amongst the plans submitted, including the resolution plan submitted by Vedanta," it said.
It also said that in the event where no plan is found "worthy of acceptance" by the requisite majority of the CoC, corporate debtor Essar Steel, shall "go into liquidation".
The bench dealt in detail with Section 29A (c) of the IBC which provides as to who are the persons ineligible to bid for a corporate debtor.
It said: "The interpretation of Section 29A(c) now becomes clear. Any person who wishes to submit a resolution plan, if he or it does so acting jointly, or in concert with other persons, which person or other persons happen to either manage or control or be promoters of a corporate debtor, who is classified as a NPA and whose debts have not been paid off for a period of at least one year before commencement of corporate insolvency resolution process, becomes ineligible to submit a resolution plan."
It further said that the provision ensured that "the ineligibility can only be removed if the person submitting a resolution plan makes payment of all overdue amounts with interest thereon and charges relating to the NPAs in question before submission of a resolution plan."
The bench added that the position in law is clear that such person "must first pay off the debt of the said corporate debtor classified as NPAs in order to become eligible under Section 29A(c)".
It held IBC "lifts the corporate veil" to ascertain whether a firm has been formed to evade obligations imposed by law and this principle is applied even to group firms so that one is able to look at economic entity of the group as a whole.
As per the verdict, ArcelorMittal will qualify to bid for Essar Steel only if it clears the Rs 7,000 crore dues of two firms, Uttam Galva and KSS Petron, it was previously associated with.
With regard to NuMetal, it has not specified NPAs of its related corporate debtors which have to be paid off to become eligible to bid for corporate debtors Essar Steel.
The bench examined the resolution plan of NuMetal and said it was incorporated in Mauritius on October 13, 2017, "expressly for the purpose" of bidding for Essar Steel.
It said Aurora Holdings Ltd (AHL) and Aurora Enterprises Ltd (AEL) were also incorporated on the same day by Rewant Ruia, son of Ravi Ruia, who was the promoter of Essar Steel.
It also noted that the "entire share capital of AHL, which in turn held the entire shareholding of AEL, which in turn held the entire share capital of Numetal".
"At this stage there can be no doubt whatsoever that Rewant Ruia, being the son of Ravi Ruia, would be deemed to be a person acting in concert with the corporate debtor, being covered by Regulation 2(1)(q)(v) of the 2011 Takeover Regulations," it said.
The bench, however, did not agree to the submission that the Russian bank VTB was barred from bidding for a company in India on account of sanctions imposed by authorities in USA and the European Union.
"What will be noticed is that the sanctions that have been imposed by the authorities of both USA and the Council of EU are not on account of any misconduct on the part of VTB Bank. Rather, they have been imposed politically, because of the conduct of a particular country, i.e. Russia, which has sought to undermine Ukraine's territorial integrity, sovereignty...," it noted.
Dealing with ineligibility of ArcelorMittal, it said it was absolutely clear that L N Mittal is "ultimate shareholder" of ArcelorMittal India Limited and one of the group firms was "a promoter of Uttam Galva" whose assets have been declared as NPAs.
"The reasonably proximate facts prior to the submission of both resolution plans by AMIPL would show that there is no doubt whatsoever that AMNLBV's shares in Uttam Galva were sold only in order to get out of the ineligibility mentioned by Section 29A(c)...," it said.
It also said there was no doubt that ArcelorMittal had a considerable stake in KSS Petron which had also been declared NPA.