Supreme Court does well on Essar Steel bids PDF Print E-mail
Friday, 05 October 2018 03:48
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While ArcelorMittal should always have cleared its dues first, SC right to say that all Numetal shareholders were ‘acting jointly’


Though the resolution process for Essar Steel’s NPAs has been dragging for more than a year against the allowed 180 days—with an extension of another 90—the Supreme Court has done well to put an end to the needless wrangling and posturing by all parties by piercing the corporate veil. In the case of ArcelorMittal, while it was ineligible to bid under Section 29A of the Insolvency and Bankruptcy Code (IBC) since it was a promoter of Uttam Galva that owed banks Rs 7,000 crore, it insisted it owed no dues. Amazingly, it was allowed to sell its shares in Uttam Galva and so was no longer classified as a promoter; it is not clear why the banks allowed this sale to go through. When public indignation forced the issue, ArcelorMittal paid the money into an escrow account, but said this was to be released only after it was declared the winner of the Essar Steel bid. This was gaming the system in the worst possible manner. For one, ArcelorMittal should never have been allowed to bid without clearing its dues. Second, while it improved its bid to Rs 42,000 crore, this tactic would ensure the Committee of Creditors (CoC) treated its bid as effectively being Rs 49,000 crore. Since ArcelorMittal’s bid should have been considered ineligible but it was given one more chance—the SC says the CoC wanted this to make the bidding more competitive—to become eligible by paying the Rs 7,000 crore dues first, in all fairness, even Vedanta should be given one more chance to revise its bid assuming ArcelorMittal agrees to pay its dues, as the SC has ruled.

The SC’s piercing of the corporate veil is even more interesting in the case of Numetal which was declared ineligible by the CoC since it had Rewant Ruia—the son of one of the promoters of the defaulting Essar Steel—as a shareholder. Numetal, SC says, was incorporated in Mauritius on October 13, 2007, as were two firms called AHL and AEL. Rewant Ruia owned all of AHL which, in turn, owned all of AEL that owned all of Numetal. On October 18, AEL sold 26.1% of its holding in Numetal to ECL that was owned by two trusts whose beneficiaries were companies owned by his father Ravi and his uncle Shashi Ruia!

One day before the government brought in changes in the law to debar defaulters from bidding, ECL transferred its 26.1% Numetal holdings to a firm owned by VTB Bank of Russia and AEL also transferred 13.9% to the same VTB firm. And, on the same day, AEL transferred 25.1% of Numetal to a Dubai trading company called Indo and 9.9% to another Russian firm called TPE. Theoretically, the Ruias were no longer associated with Numetal and, in the second round, since Numetal took on JSW as a partner, the bid should have become eligible. But, as SC pointed out, the original partners of Numetal were “acting jointly”, and so they were liable to pay the Essar Steel dues even though the Ruias were out. While Numetal has been given two weeks to make itself eligible, the SC judgment means it is ruled out since the Ruias’ dues are around Rs 49,500 crore; after paying this, Numetal will have to make a bid to the CoC! Given the elaborate plans made to hide Numetal’s real ownership, the SC has done well to pierce through this. This should serve as a warning to other Indian promoters who try to do the same thing.



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