After 583 days it was admitted into the National Company Law Tribunal (NCLT) for insolvency proceedings, a ruling may finally be in the offing for Essar Steel India Ltd (ESIL).

With claims of over Rs 49,000 crore from creditors, Essar Steel is easily one of the largest cases under Insolvency & Bankruptcy Code (IBC) - the outcome of which will set a precedent for many cases in the future.

The promoters of Essar Steel have made several attempts to wrestle back control of the company, first by trying to participate in the bidding itself and then by offering to withdraw the company from insolvency proceedings by clearing dues of all financial and operational creditors.

However, the provisions of IBC have so far prevented them from succeeding. Section 29A of the IBC, which bars promoters of a defaulting company from bidding in the insolvency process meant the Ruia were not allowed to place a bid for the company.

Rewant Ruia, the son of Essar Steel’s promoter Ravi Ruia, even partnered with the Numetal consortium to place a bid for Essar Steel. But the Supreme Court ruled that unless Ruias cleared dues of all Essar Group companies, they would continue to be ineligible to bid. With the Numetal consortium failing to clear these dues within the given timeline, this attempt also failed.

On October 25th, 2018, the creditor's committee of Essar Steel voted to select ArcelorMittal and Nippon Steel joint venture as the winning bidder under IBC, with their offer to repay Rs 42,000 crore upfront to the lenders.

Hours after the voting concluded with 92 percent of the bankers voting in favour of ArcelorMittal, the promoters sprang a surprise. This time, Ruias offered to pay Rs 54,389 crore in total to the financial and operation creditors to withdraw the company from IBC under Section 12A.

Section 12A states that the Adjudicating Authority may allow the withdrawal of application as submitted under the IBC on an application made by the applicant with the approval of 90 percent of the voting share of the Committee of Creditors. However, such an application is only be allowed until the commercial process of the bidding begins.

On January 29, 2019, NCLT Ahmedabad ruled that the promoter’s offer to withdraw ESIL from IBC was not maintainable for several reasons. One, the offer was made long after the commercial process of the bidding started.

Two, Supreme Court’s order in the Numetal case already declared Ruias ineligible to bid, and considering the offer would be dilutive of the apex court’s order.

Three, withdrawal under Section 12A could only be allowed when the plea to withdraw was made by the person who initiated insolvency- which in this case were the lenders and not the promoters.

The other key hurdle was the challenge mounted by the operational creditors, who moved NCLT against the ArcelorMittal offer in favour of the promoters’ offer, which proposed a higher repayment to the operational creditors. They even moved the Supreme Court in the matter, which turned down their plea to be heard by NCLT before it ruled on ArcelorMittal’s offer.

The operational creditors have argued that there should be no discrimination between financial and operational creditors when it comes to repayment, along with the lines of the Binani Cement case.

While NCLT Ahmedabad has already turned down the promoters’ offer, its verdict on the operational creditors’ plea is due today and may prove to be a challenge for ArcelorMittal, especially if the court asks them to increase their offer in favour of such creditors.

Since it was admitted into NCLT Ahmedabad on August 2, 2017, the Essar Steel case has seen many twists and turns, and the litigation related delays come with huge costs. Banks claim they are losing Rs 17 crore each day because of these delays.

Irrespective of the ruling today, several lawyers and banks involved in the process believe that the verdict will be challenged by the promoters in a higher court, and until the top court rules in the matter, the resolution would be tough.

First Published:Mar 8, 2019 3:32 PM IST