HEADLINES:
December 08 2019
ArcelorMittal to take over debt-ridden Essar Steel
09 March 2019

NCLT clears global magnate’s ₹42,000 cr. deal

After a protracted legal battle, the National Company Law Tribunal (NCLT), Ahmedabad, on Friday approved a ₹42,000 crore resolution plan of global steel magnate ArcelorMittal to take over the debt-ridden Essar Steel in Gujarat. 

The approval for the mega deal came almost 583 days after the NCLT began the insolvency proceedings, instead of the mandated 270 days. 

Bankruptcy proceedings 

Essar Steel runs a 10-million-tonne steel mill at Hazira in Gujarat and owes over ₹49,000 crore to over two dozen banks, led by the state-run SBI, and has been under bankruptcy proceedings since June 2017. 

Approval of the deal translates into a haircut of about 14% for the lenders. 

Essar Steel’s was one of the 12 large non-performing assets accounts identified by the Reserve Bank of India (RBI) for bankruptcy proceedings to recover dues of banks and financial institutions. 

Soon after the RBI’s direction, the largest lender SBI and Standard Chartered Bank filed insolvency proceedings against the company at the Ahmedabad Bench of the NCLT in June 2017.

With the NCLT’s verdict, the original promoters of Essar Steel, Shashi and Ravi Ruia, have lost control of their once flagship facility.

Earlier, in October 2018, the deal was approved by Essar Steel’s Committee of Creditors (CoC). 

Since then the deal was pending before the tribunal for final approval amid several litigations including the final last-ditch bid from the Ruia family with an offer of ₹54,389 crore for debt settlement to retain their family jewel. 

The erstwhile promoters offered to clear all dues of lenders and vendors in full if the CoC dropped the insolvency proceedings and allowed the family to retain the facility. The lenders rejected the settlement plan as did the tribunal. 

However, while rejecting the Ruias’s offer, the NCLT had said that the ₹54,389-crore offer by Essar Steel Asia Holding, which was much higher than ArcelorMittal’s bid, was not maintainable as the only way to make a proposal to withdraw from the insolvency process is through Section 12A. 

Also, the provisions of Insolvency and Bankruptcy Code (IBC) prevented the promoters from making the bid. 

Section 29A of the IBC, which bars promoters of a defaulting company from bidding in the insolvency process meant the Ruias were not allowed to place a bid for the company despite making a settlement offer of over ₹54,000 crore. 

 

 

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