Mumbai: IDBI Bank Ltd is likely to initiate insolvency proceedings against Orissa Slurry Pipeline Infrastructure Ltd, the company that operates the pipeline supplying raw materials to Essar Steel Ltd’s Odisha plant, according to two people familiar with the matter.
By initiating bankruptcy proceedings, the state-owned lender wants to look at simultaneous resolution of both assets and avoid any hurdles in the sale process of Essar Steel. The Ruia family owned steel firm is one of the 12 cases identified by the Reserve Bank of India for initiating insolvency proceedings at National Company Law Tribunal (NCLT).
Orissa Slurry Pipeline is a 253km pipeline that is responsible for transporting about half the raw materials for Essar Steel’s plant in Odisha.
The slurry pipeline is critical infrastructure as whoever controls it can influence the plant’s production capabilities.
According to an Economic Times report, NuMetal Mauritius, a consortium in which Essar founders hold a stake, had proposed to buy majority stake in Orissa Slurry Pipeline from India Growth Opportunities Fund promoted by Srei Infrastructure. However, this was stayed by the Delhi high court after the State Bank of India argued that India Growth Opportunities Fund can’t transfer its stake in the pipeline company without the lender's approval.
Numetal is also one of the firms along with Arcelor Mittal to submit final bids for bankrupt Essar Steel.
Emails to IDBI Bank, Srei Infra did not elicit any response.
“NuMetal has approached all the existing lenders of OSPIL (Orissa Slurry Pipeline) for their consent for the proposed purchase. We are confident that lenders will be happy to have us as the controlling shareholder after they have understood our proposal. In the event that they are not comfortable, we are prepared to assist the firm in refinancing any dissenting lenders. Initiation of IBC process for OSPIL is neither necessary nor warranted in view of the planned refinancing. In any event, IBC process for OSPIL would be an independent process unlinked to the Essar Steel Industries Ltd (ESIL) process," said Numetal spokesperson
The ownership over the slurry pipeline has been under dispute since 2015 when Srei Infra bought a 70% stake in the pipeline from Essar Steel through a sale and leaseback arrangement. The deal was done to keep the account of Essar Steel standard and debt transferred to OSPIL.
RBI objected to the sale of the pipeline, stating that such a sale will be considered restructuring and can happen only if more than 50% of the revenue of the buyer is dependent on the cash flows from the seller. Considering Srei is not in the slurry business, lenders to OSPIL decided to unwind the transaction. Soon the company moved the high court asking for a stay on the cancellation of the deal.
While the final judgement on the ownership is still pending in the Calcutta high court, the insolvency resolution professional of Essar Steel moved the Ahmedabad NCLT seeking to attach the slurry pipeline with the company. Both IDBI and Edelwesiss Asset Reconstruction Co. Ltd were applicants in the case.
The plea was dismissed by the NCLT, which said in its order that it cannot take a decision as the case over ownership dispute in pending in the Calcutta high court.
According to lawyers, IDBI and other lenders through resolution professional of Essar Steel have to become a party to the civil suit filed in Kolkata by Srei. The proceedings with respect to ownership is pending before the trial court and an interim injunction has been granted in appeal by the Calcutta high court.
“The trial court will have the final say with respect to ownership and it is best that the lenders seek an expedited disposal of the suit so that ownership can be decided," said Ashish Kumar Singh, managing partner of boutique corporate and dispute advisory law firm Capstone Legal. “The lenders may have to approach the Calcutta high court by filing writ proceedings under Article 227 (supervisory jurisdiction) for time-bound disposal of suit in light of insolvency proceedings being dependent on the suit's outcome."