ArcelorMittal and Numetal Mauritius must clear debts in defaulting companies where they hold stakes before bidding for Essar Steel Ltd, and merely selling stakes in those companies won’t make them eligible, details from the bankruptcy court’s Thursday order show.

The National Company Law Tribunal (NCLT) has given a month for the two companies to fix their ineligibility. The order puts the ball back in the Committee of Creditors’ (CoC) court.

The CoC and RP did not follow the prescribed procedure and their decision to invite fresh bids may appear prudent but is not legally sound and valid, the order said.

ArcelorMittal and Numetal, which were finalists in the Essar Steel auction, were disqualified by the resolution professional. The two companies then moved NCLT. The tribunal allowed a second round of auction, on condition that its results not be revealed until it rules on the matter. On Thursday, the NCLT ruled that the two bids may be reconsidered after fixing their ineligibility.

This could pose a new challenge for ArcelorMittal, which has exited Uttam Galva, a loan defaulter. Also, ArcelorMittal promoters once owned nearly 32% in KazStroyService (KSS) based in Kazakhstan, that fully owned KSS Petron, which became a non-performing asset in 2015.

Now, NCLT wants Essar Steel creditors to decide afresh on the eligibility of the two bidders.

“This is the only ground on which the decision has been taken and not on other issues. The NCLT has only addressed a procedural defect in the CoC’s decision and has only said that AM and NM are potentially ineligible in line with the determination of the RP. However, it is still open to ArcelorMittal and Numetal to remove their ‘ineligibility’ by repaying unpaid loans," said Alok Prasanna Kumar, visiting fellow at the Vidhi Centre for Legal Policy, a Delhi-based legal think tank.

A representative of Numetal declined to comment while a spokesperson for ArcelorMittal said the company was reviewing the order and will comment in due course as appropriate.

In the case of Numetal, one of the promoters of the special purpose vehicle (SPV), Rewant Ruia, son of Ravi Ruia, is one of the original promoters of Essar Steel and this had led to disqualification of Numetal in round one. Rewant Ruia is beneficiary of a trust that backed Aurora Enterprises which in turn held about 25% stake in Numetal during round one of bidding for Essar Steel. Russia’s VTB is the largest shareholder with about 40% stake.

“It is still not clear whether the CoC and RP will have to reconsider Numetal bid as per the existing structure or the original structure that was submitted during round one of bidding. In the present structure, Rewant Ruia and his trust have already exited," said an Ahmedabad-based legal expert in the know of the matter, who did not wish to be named.

“The NCLT has also suggested that the CoC may re-look to opt for a fresh bid from all interested parties, starting with initiation of new expression of interest. If accepted, this may result in the bidding process starting again, and ArcelorMittal and Numetal may have more competitors in the race," according to Shreya Garg, Senior Resident Fellow at the Vidhi Centre for Legal Policy.