Essar Steel India Ltd’s promoter Ruia family has once again challenged global steel giant ArcelorMittal’s bid for the bankrupt local company, potentially stretching the two-year-long insolvency resolution process even further.
Essar Steel Asia Holdings Ltd, which owns 72% of Essar Steel, alleged on Tuesday that ArcelorMittal’s bid was invalid as its billionaire promoter Lakshmi Mittal hid his links with loan defaulting companies run by his brothers.
In a statement, Essar Steel Asia said Lakshmi Mittal and ArcelorMittal India Ltd “conspired to suppress vital facts” and misled the Committee of Creditors, the Supreme Court and the bankruptcy courts into believing that they had ceased to have any business association with his brothers Pramod and Vinod Mittal and their companies.
ArcelorMittal didn’t immediately comment on the allegations.
Essar Steel was among the 12 large companies identified by the Reserve Bank of India in June 2017 in its first list of defaulters under the IBC. The company owes total debt of almost Rs 50,000 crore. Its 10-million-tonne plant in Gujarat is the biggest steel asset in India that’s on the block.
In October last year, lenders to Essar Steel approved a joint bid by ArcelorMittal and Japan’s Nippon Steel & Sumitomo Metal Corp to take over Essar Steel. In doing so, the lenders rejected a proposal by Essar’s Ruia family to pay Rs 54,389 crore to come out of bankruptcy. ArcelorMittal’s bid comprises an upfront payment of Rs 42,000 crore towards debt repayment and a capital injection of Rs 8,000 crore.
The National Company Law Tribunal, the designated bankruptcy court, approved ArcelorMittal’s offer in March this year. However, the Supreme Court has stayed the takeover pending resolution of the pleas in the National Company Law Appellate Tribunal (NCLAT) filed by some creditors over the distribution of the proceeds that will come from the sale of Essar Steel. The NCLAT's next hearing is on May 13.
The lenders said last month they were sticking to their stand on how to distribute the amount that ArcelorMittal had agreed to pay for Essar Steel and that they may approach the Supreme Court to settle the issue if the appellate tribunal doesn't agree with them.
Essar Steel Asia has filed a petition on behalf of Prashant Ruia in the NCLAT alleging that Mittal was a promoter of GPI Textiles, Balasore Alloys and Gontermann Piepers – companies run by his brothers that had defaulted on their loans.
This disqualifies ArcelorMittal from participating in insolvency proceedings to acquire Essar Steel as any person or company is ineligible to submit a resolution plan if they are defaulters or are connected to defaulters as per Section 29(A) Insolvency and Bankruptcy Code (IBC), Essar Steel Asia said.
The government had introduced the section in the IBC in 2017 to keep errant promoters and willful defaulters from buying assets.
Essar Steel Asia also said that Lakshmi Mittal and ArcelorMittal, in an application on October 17, 2018, stated they had no business association with his brothers and their companies for more than 20 years.
It said that as late as September 2018 Lakshmi Mittal was a co-promoter of Navoday Consultants Ltd along with his brothers Pramod and Vinod Mittal. Navoday was, in turn, a promoter of GPI Textiles, Balasore Alloys and Gontermann Piepers, Essar alleged.
Essar Steel Asia also said that ArcelorMittal was fully aware of these business associations and its ineligibility to bid. So, in order to hide this fact, Mittal sold his stake in Navoday between October and December 2018 and stopped showing himself as a promoter of Navoday.
“This is the same tactic that was previously used by ArcelorMittal to avoid making payment of the overdue debts of Uttam Galva Steels and KSS Petron and that the Hon’ble Supreme Court had previously held to be unlawful,” the company alleged.