The NCLT decision paves way for ArcelorMittal to move closer to their plans for acquiring Essar Steel
The Ruias have been seeking withdrawal of the petition under section 12A of the insolvency and bankruptcy code
In a major setback to the Ruia family, the Ahmedabad bankruptcy court today turned down Essar Steel Asia Holdings Ltd’ (ESAHL) bid to regain control over the bankruptcy ridden Essar Steel.
The Ruias have been seeking withdrawal of the petition under section 12A of the insolvency and bankruptcy code (IBC) that allows withdrawal of insolvency proceedings subject to approval by 90% of the creditors and the National Company Law Tribunal (NCLT). Their offer was made on a day when more than 92% of creditors to Essar Steel voted in favour of handing over the company to ArcelorMittal Netherlands BV.
The NCLT decision paves way for ArcelorMittal to move closer to their plans for acquiring Essar Steel.
Ruia family backed ESAHL, which holds 72% of shares in Essar Steel, had last year approached NCLT Ahmedabad with a proposal for settling the entire debt for about ₹ 54,389 crore. ESAHL had challenged the Resolution Professional and CoC’ decision to accept ArcelorMittal’s resolution plan for Essar Steel where the resolution process under Indian Bankruptcy Code had been initiated.
A two member bench of justice Harihar Prakash Chaturvedi and justice Manorama Kumari today said that ESAHL’s plea was ‘non maintainable’.
“There is no irregularity in the decision of RP and CoC in rejecting ESAHL’ settlement plan," Chaturvedi said while reading out the order.
The financial creditors had voted in favour of the resolution plan of ArcelorMittal on 25 October. Essar Steel shareholders then proposed to pay all its lenders, including operational lenders, in full.
ArcelorMittal’s resolution plan envisages an upfront payment of ₹ 42,000 crore to lenders and an additional ₹ 8,000 crore towards capital expenditure.
The tribunal said that once the insolvency process has been initiated, the only way to withdraw a resolution plan was with the permission of CoC and IP.
The tribunal cited the recent Supreme Court order in the Essar Steel matter for not accepting the settlement plan of the Essar Steel promoters.
Essar Steel shareholders’ application was in violation of section 12 (a) of IBC, the court said.
Section 12A states that any application to withdraw must be submitted prior to the issuance of the invitation for expressions of interest and must be accepted by 90% of creditors.
The Supreme Court in October last year allowed ArcelorMittal and Numetal to bid for bankrupt Essar Steel provided they paid off the dues of defaulters connected to them within two weeks.
The CoC were to decide on the best offer in eight weeks’ time after also considering the proposal of the Vedanta group, the third bidder, the apex court said.
A clutch of operational creditors and Essar Steel shareholders have challenged the CoC and RP’s decision to accept ArcelorMittal’s resolution plan. Standard Chartered Plc has also approached the NCLT as dissenting financial creditor so that it could be heard before the tribunal decides on ArcelorMittal’s bid. The hearing on their pleas will be held soon.
"We welcome today's ruling by the NCLT which protects the integrity of the IBC and ensures its legitimacy as a rules based law. This is a positive development for both Essar Steel India and the country more broadly. We hope now for a swift resolution to this case," ArcelorMittal said in a media statement.
On 25 October, more than 92% of creditors of Essar Steel voted in favour of handing over the debt-laden company to ArcelorMittal after it cleared pending dues to Uttam Galva and KSS Petron.
“We continue to believe that our offer of ₹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," Essar group spokesperson said in a statement.
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 official said.