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Is Arcelor Mittal eligible to bid for Essar Steel?

By Newsd
Published on :
ArcelorMittal's plan approved by CoC to take over Essar Steel, LoI issued

The battle for Essar Steel has heated up with Arcelor Mittal and Numetal Mauritius submitting their bids for acquiring the distressed asset. The moot question, however, is on the eligibility of the bidders.

Arcelor Mittal is ineligible as per Section 29A (c) of IBC since they are the promoter of two companies which have NPA for more than one year:

Uttam Galva Steel – NPA / Awaiting NCLT admission

KSS Petron – NPA / Already in NCLT

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: 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”

Arcelor Mittal is trying to circumvent the above section of IBC by selling their shares in Uttam Galva and KSS Petron just a few days before the bid submission for Essar Steel. By doing this, the company is trying to justify that they were not promoters of both entities on the date of submission of the bid, and hence the ineligibility criteria in the code do not apply to them.

This standby Arcelor Mittal is incorrect as they were promoters of the two companies when they became NPA and continued as promoters of these companies for the 12-month period.

The only procedure provided for such an ineligible person to become eligible is to submit a resolution plan, and this is provided in Section 29A itself. A promoter or corporate debtor being an NPA for over one year should make payment of all overdue amounts before submission of resolution plan to become eligible.

If the above action of Arcelor Mittal is accepted as legal, then all other ineligible promoters of hundreds of companies which are currently NPA will also do the same thus becoming eligible to bid. This will defeat the whole purpose of the IBC. This cannot, therefore, be permitted since it undermines the spirit of IBC.

Section 29 A of the IBC code says that:

“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—

(c) 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:

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”

In line with this clause, Arcelor Mittal India Pvt Ltd (AMIPL) is ineligible to bid for Essar Steel because of the following reasons:

In 2009, AMIPL acquired a 29.1 stake in Uttam Galva Steel (UGS), which has been declared an NPA on September 2016. AMIPL sold its stake in UGS only in 7th February 2018, while the IBC process against Essar Steel was initiated on 2 August 2017. Hence AMIPL was very much a shareholder in an insolvent company at the time that Essar Steel was brought under the purview of the IBC code.

Additionally, AMIPL had also picked up a stake in KSS Petron, which has also been declared an NPA more than a year ago and has already been referred to the NCLT Court. AMIPL sold this stake on 11 February 2018, in another attempt at circumventing the provisions of Section 29 A of the IBC code.

Under the circumstances, it remains to be seen if AMIPL’s bid will be considered eligible when the designated legal firms vet the technical bids for Essar Steel. If one were to go by the provisions that are clearly set out in Section 29 A of the IBC code, it is unlikely that AMIPL’s bid will pass muster. The only option left with AMIPL would be to settle their overdue amount with the lenders.

If the AMIPL bid does get accepted, it will open up a Pandora’s Box wherein every promoter will be emboldened to sell off their stake in the insolvent company to become eligible for bidding for another insolvent company. In such a scenario, the IBC process will become an exercise in futility that will cause more harm than good to India Mumbai economy. Can a country, which has been desperately trying to address its bad debt situation.

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