Supreme Court virtually shuts the door on Ruia attempt to get back Essar Steel

The jewel in the Ruia family’s crumbling business empire, Essar Steel, is likely to find a new home eight weeks from now. That is unless Numetal Ltd can find close to ₹45,000 crore to clear the non-performing asset (NPA) dues of Essar Steel’s promoters and find more money to participate in the bidding process for the steelmaker.

On Thursday, the Supreme Court put an end to a legal battle that has spanned nearly 9 months to determine the eligibility for bankrupt Essar Steel’s bidders–Numetal Ltd and ArcelorMittal. Justice Rohinton F. Nariman and Justice Indu Malhotra of the Supreme Court found Rewant Ruia’s “looming presence” in Numetal has remained all along since the incorporation of the Mauritius-based company till the time of the submission of its second bid for Essar Steel in April. Rewant Ruia is the son of Essar Group promoter Ravi Ruia. The judges also ruled that to be eligible to bid for Essar Steel Numetal will have to clear the NPA dues of Essar Steel in two weeks.

At the same time, the judges also ruled that ArcelorMittal India Ltd will have to clear the NPA dues of the companies connected to its promoters. The dues amount to nearly ₹7,000 crore. If they clear the NPA dues, the two companies will be eligible to submit a fresh resolution plan for Essar Steel.

The judges also asked the Committee of Creditors eight weeks to select the best resolution plan, including the one submitted by Vedanta Resources.

Essar Steel operates a 10 million tonne per annum integrated steel plant on the coast of Gujarat. It produces high quality flat steel products used for everything from automobiles to warships. It was the first asset to go under the corporate insolvency resolution process (CIRP) as prescribed by the Insolvency and Bankruptcy Code, last July and it remains the largest asset available under the new bankruptcy law in India.

However, the resolution of the company has tested the IBC to its limits and even forced the government to introduce an amendment which barred former promoters who defaulted on their loans to come back and bid for the company once it goes into bankruptcy proceedings. The amendment was brought in under Section 29A on November 23, 2017 through an ordinance. And though it has led to a legal-battle that has been fought in the National Company Law Tribunal, the National Company Law Appellate Tribunal and finally the Supreme Court, the amendment finally seems to have served its purpose.

Even though Numetal has changed its shareholding structure multiple times over the last one year, which the apex court ruled were “undoubtedly” done to avoid the application of Section 29A on its resolution plans.

Numetal was incorporated on October 13, 2017. At the time of incorporation Aurora Enterprises Ltd, then wholly-owned by Aurora Holdings Ltd, a company 100% owned by Rewant Ruia, held 100% holding in Numetal. Since then and ever since section 29A was included in the IBC, Aurora Enterprises Ltd has shed its stake in Numetal. Currently, VTB Capital, Russia’s second largest bank holds 40% stake in Numetal. Two other companies—Indo International Trading and Tyazhpromexport (TPE) – hold the remaining stake in the firm.

However, Justice Nariman and Justice Malhotra found that despite the changes in the shareholding, the fact that ₹500 crore of earnest money by Aurora Enterprises has remained with the resolution professional even after the second bid from Numetal in April 2018 points to the presence of Rewant Ruia’s influence in the firm.

Thus, while Numetal was found to be a connected party to Essar Steel’s promoters and clear  ₹45,000 crore of dues before it can become eligible to bid for the steelmaker, even ArcelorMittal’s attempts to avo paying  ₹7,000 crore of NPA dues of companies connected to its promoters was unsuccessful. ArcelorMittal had already written to the Committee of Creditors stating that it is ready to clear the dues but it challenged the NCLAT’s order that it needs to clear the dues before becoming eligible.

With the Supreme Court’s order, the litigation around Essar Steel’s insolvency resolution has been put to rest. All that remains to be seen is who comes out on top when the Committee of Creditors make their decision. Will Numetal cough up more than ₹45,000 crore to own Essar Steel? Will the world’s largest steel maker ArcelorMittal finally own an integrated steel plant in India? Or will Anil Agarwal’s Vedanta Resources enter the steel industry? The answer will be out eight weeks from now.