Lenders rejected bids by Numetal and ArcelorMittal after both companies failed the legal eligibility test. The legal advisors cited one of the clauses of Section 29A of the Insolvency and Bankruptcy Code (IBC) for rejecting the bids. According to the clause, a company or a promoter with investments in a firm whose loans have turned into non-performing assets (NPAs) for more than a year will not be eligible to bid for a company undergoing insolvency resolution.

ArcelorMittal said it had not received any information from the resolution professional till Wednesday evening.

The Ruia-family owned Essar Steel was referred to the National Company Law Tribunal (NCLT) after the company defaulted on loans worth Rs 440 billion as on March 2017. Lenders are also debating whether to call for offers from more bidders and a decision is expected within a few days.

The companies that submitted EoIs earlier and can bid again include Vedanta, Tata Steel, Nippon Steel & Sumitomo Metal Corporation, Steel Authority of India, Numetal and ArcelorMittal. Both Numetal and ArcelorMittal had time to rectify the legal technicalities to submit their bids, a banker said.

Numetal’s bid was rejected because 25 per cent of its shares are owned by a Singapore-based trust, with Rewant Ruia, a Ruia family member, as a beneficiary, another banker said. The Ruias are the promoters of Essar Steel.

Numetal’s bid was rejected because 25 per cent of its shares are owned by a Singapore-based trust, with Rewant Ruia, a Ruia family member, as a beneficiary, another banker said. The Ruias are the promoters of Essar Steel.

ArcelorMittal’s bid was rejected because it had a 29 per cent stake in Uttam Galva Steels, whose debt had also turned into an NPA for more than a year. Mittal had sold his 29 per cent stake to the Miglani family, the promoter of Uttam Galva Steels, on February 7, just before submitting the bid for Essar Steel.

Consequently, the co-promotion agreement dated September 4, 2009, was terminated. However, in the records of the Securities and Exchange Board of India (Sebi) and stock exchanges, ArcelorMittal was still classified as a promoter along with the Miglani family. Sources indicated that ArcelorMittal had approached Sebi and stock exchanges for de-classification as a co-promoter. The stock exchanges will make the change as soon as Sebi does it.

Mittal’s 33 per cent personal investment in KazStroyService (KSS) of Kazakhstan, which in turn, held 100 per cent in KSS Petron, another firm whose loans turned into NPAs, was also cited as a reason for ArcelorMittal’s ineligibility.

The bid was rejected despite Mittal selling his stake in KSS before submitting the Essar Steel bid.

Banks were in a fix as both companies’ bids were rejected and they would not be able to recover their dues even in the next quarter, sources said.

The option before Numetal is to change its equity structure. The trust owned by the Ruias can sell its 25 per cent stake in Numetal before April 2 to VTB Bank of Russia and other partners, which currently own 75 per cent in the company.

If ArcelorMittal continued to remain a co-promoter in Sebi’s records, the eligibility of its bid would hinge on Uttam Galva Steels and KSS Petron repaying their dues. According to Section 29A of the IBC, a defaulting promoter is eligible to bid again provided he clears overdue payments. Uttam Galva Steels has already moved a one-time settlement application with the State Bank of India offering to repay Rs 28.84 billion out of the total debt of Rs 56 billion. SBI will take a call on this before March end.

Meanwhile, senior lawyers said the Committee of Creditors should have invited fresh bids, particularly when Tata Steel, Vedanta and Nippon did not submit any resolution plans after submitting expressions of interest. "While recent amendments to the IBC provide for inviting fresh bids in cases where applicants that submitted resolution plans before the Amendment Act were found ineligible, it does not restrict the fresh offer to be made only to those parties that had submitted expressions of interest,” said R S Loona, managing partner of Alliance Law, a Mumbai-based corporate law firm. “Lenders should immediately let more bids come in. Both VTB and ArcelorMittal would bid again after rectifying the legal grounds, which led to them becoming ineligible. The lowest price is fixed. Now banks should only try to maximise the value," said another lawyer asking not to be identified.

Lawyers also said there would be more to the battle for Essar Steel. Unsecured creditors and suppliers of Binani Cement have moved the NCLT as the resolution plan submitted by the highest bidder takes care of secured lenders and only one unsecured creditor, IDBI Bank. “Essar Steel's operational creditors have an outstanding debt of Rs 229 billion, which is a large amount. We do not expect these creditors to keep quiet. So expect more fireworks," said the lawyer cited above.