Although the lenders of Essar Steel have not decided whether they are eligible to bid for the company’s assets, both ArcelorMittal and Numetal have indicated that they will pursue legal options if their bids are scrapped.

In the weeks following the submission of binding bids on 9 February, ArcelorMittal and Numetal have aggressively postured in public, calling each other’s bids ineligible and threatening legal action if decided otherwise.

According to two people directly involved in Essar Steel’s resolution process, this was one of the reasons why some companies did not participate in the final round of bidding, despite showing interest initially.

“We felt that the resolution process could run into litigation and therefore we decided to stay out of bidding and focus our energies on other assets which are up for bidding,” said a partner of a large global special situation fund on condition of anonymity. Among those who had shown interest in bidding for Essar Steel but did not submit binding bids are Tata Steel Ltd and Vedanta group, Mint reported on 12 February.

While the acquisition of Essar Steel is key to ArcelorMittal’s long-cherished India entry plans, for the Ruia family, which owns 25% in the Numetal consortium, it is the last shot at retaining Essar Steel at a time when the demand cycle of steel is turning around globally; prices have almost doubled in the past two years. Essar Steel owes close to Rs45,000 crore to various lenders, comprising the single largest chunk of group-level debt.

“The spirit of the law is to prevent defaulters from buying back their own companies,” Aditya Mittal, group chief financial officer and son of business tycoon L.N. Mittal, said in an interview last week. The younger Mittal, who has headed mergers and acquisitions for ArcelorMittal in the past, is personally involved in the efforts to acquire Essar Steel. Though he declined to elaborate on ArcelorMittal’s strategy, Mittal maintained that the asset is key to its expansion plans. “The other assets that were available did not offer the scale of opportunities that we believe Essar Steel does. As a large integrated asset, we concluded that Essar Steel offered the most potential for us and our ability to apply ArcelorMittal’s unmatched operational and technical expertise,” he said.

To meet eligibility norms, both sides have sought to address contentious issues that surround their respective bids. Numetal has offered to drop Rewant Ruia, son of Essar group vice-chairman Ravi Ruia, from its consortium. ArcelorMittal insists that its stake in Uttam Galva Steels, which is facing bankruptcy proceedings, was incidental. “In our case, we became a financial investor in Uttam Galva in 2009 because we were already supplying raw materials to the company, but we never joined the board and were never part of the management, Mittal said, adding that “a year ago, we wrote off the investment in Uttam Galva in our books and later sold our stake back to the actual promoters”.