In a big blow to promoters of Essar Steel, the Ahmedabad bench of the National Company Law Tribunal has rejected the settlement offer given by the Ruia family to take back control of the insolvent entity. The development could further delay resolution process as the matter may once again land in a higher court and the Supreme Court for directions.
The Ruias had offered full settlement of the entire admitted claims of the financial creditors, operational creditors, workmen and employees in Essar Steel aggregating to Rs 54,389 crore. The offer was made on the day the Committee of Creditors (CoC) approved ArcelorMittal’s resolution plan of Rs 42,000 and another Rs 8,000 crore capital infusion in the steel maker.
However, the promoters' plan was rejected by the tribunal as it neither had the support of lenders nor did it conform to new rules on withdrawing an insolvency petition.
Hearing the promoters of Essar Steel on their resolution petition, NCLT pointed out that an application for withdrawal of insolvency proceedings, under section 12A of the Insolvency and Bankruptcy Code could only be considered if the applicant who initiated insolvency process files it. In Essar Steel’s case, State Bank of India and Standard Chartered Bank had filed insolvency cases and both are yet to approach the tribunal to take the case out of the process.
"We continue to believe that our offer of Rs 54,389 crore is the most compelling proposal available to Essar Steel creditors. It seeks to repay all classes of creditors and fulfills the IBC’s overriding objective of value maximisation that has been established time and again by courts at all levels. We submitted the proposal under the recently introduced Section 12A of the IBC and the recent judgement of the Supreme Court has established that the section's provisions are applicable retrospectively," an Essar Group spokesperson said.
"We are awaiting a copy of the full NCLT order, and will take a call on next steps after we have thoroughly gone through the contents," the spokesperson added.
While officials said there is no word yet on future course of action by the Ruias, sources connected to the family said that battle to take back control of Essar Steel will continue and if need be a higher court and the apex court may be approached for directions.
The CoC is reluctant to consider Ruia’s proposal citing an earlier Supreme Court order to only consider resolution proposals of ArcelorMittal, NuMetal and Vedanta. The lenders have held that Ruias' offer will only be considered if they are directed to do so by the courts.
The tribunal on Tuesday upheld the decision taken by the CoC in October 2018 to pick ArcelorMittal as the winning bidder for the western India-based steel company.
Essar Steel is among the list of top 12 large corporate debtors, referred as ‘dirty dozen’ that was referred by the Reserve Bank of India (RBI) for resolution in insolvency courts. Banks and other creditors have total debt exposure of close to Rs 49,000 crore in the company.
Though priority was accorded to resolve this bankrupt entity as per timelines given in IBC, its resolution process has been anything but immediate. The case is way past its 270-day timeline (its 1 year and three months now), even as some of the similar bankrupt steel companies have found new owners. In all these months, the insolvency proceedings have faced several legal challenges on account of interpretation of the newly adopted code.
Though, IBC bars defaulting promoters to participate in the bidding for an insolvent company, first charges arose against Russia’s VTB capital promoted NuMetal (one of the bidders) that had Ruia family member Rewant Ruia as one of the beneficiaries. The other bidder, ArcelorMittal also faced challenges on its bid by virtue of being promoters in past of insolvent entities Uttam Galva and KSK Petron.
All these issues resulted in bids being submitted twice by all interested parties. The matter looked for a closure after a recent Supreme Court judgment that asked both NuMetal and ArcelorMittal to clear all dues within specified time to become eligible resolution applicant. While CoC was evaluating bids of Arcelor and Vedanta, the fresh challenge to the process came by way new offer by existing promoters of ESIL.
The steel entity went into problems due to cancellation of supply of natural gas, which is the main raw material for ESIL, despite the company having a firm gas allocation from the government. This led to idling of 65% of plant capacity and no compensation was offered for the loss.
Moreover, damage by insurgents to the Vizag slurry pipeline that carries iron ore fines to the ESIL plant also created problems. This led to huge disruption in raw material supply and significant losses because of increase in cost of raw materials.
Essar Steel is among the largest single location steel producers with a 10 million tonnes per annum liquid steel capacity.