Each company, while challenging its disqualification in the first round of Essar Steel bidding by the interim resolution professional appointed by the committee of creditors (CoC) of the steelmaker, has challenged the other’s legitimacy in participating in the second round of bidding on 2 April.

To be sure, Section 29 (A) of the Insolvency and Bankruptcy Code bars defaulting promoters from participating in the corporate insolvency process and the interim resolution professional had last month disqualified bids by ArcelorMittal India and Numetal Mauritius for Essar Steel.

The NCLT bench was on Wednesday hearing multiple petitions and counter affidavits filed by Numetal and ArcelorMittal. Both have challenged their disqualifications in round one by the resolution professional before the tribunal.

Senior counsel Mukul Rohatgi who appeared on behalf of Numetal told the tribunal that though the interim resolution professional had disqualified ArcelorMittal from round one of bidding, there were stronger grounds to disqualify them from further participating in the bidding process. He said according to Section 29 (A) of the Insolvency and Bankruptcy Code, ArcelorMittal can only participate in the bidding for Essar Steel after the promoters have repaid debt in companies like Uttam Galva Steel Ltd where insolvency proceedings have been initiated.

Uttam Galva has a debt of about Rs6,000 crore. While ArcelorMittal has sold its stake in Uttam Galva, it has not repaid debt. “They (ArcelorMittal promoters) did not pay debt when they bid for round one and they have not cleared it even in round two bidding. As per the IBC, if a bidder is a promoter/stakeholder/director of an NPA company, his bid will stand disqualified unless the bidder clears the debt,” Rohatgi argued.

In the case of Numetal, one of the promoters of the special purpose vehicle (SPV), Rewant Ruia, son of Ravi Ruia, is one of the original promoters of Essar Steel and this had led to disqualification of Numetal in round one. Rewant Ruia is beneficiary of a trust that backed Aurora Enterprises which in turn held about 25% stake in Numetal during round one of bidding for Essar Steel.

VTB is the largest shareholder with about 40% stake.

He said promoters of ArcelorMittal has in the past held close to 32% in KazStroyService (KSS), a company based in Kazakhstan that held 100% stake in KSS Petron, which became a non-performing asset (NPA) in 2015.

“This stake was sold by the promoters on February 9, 2018 in an attempt to disconnect from such NPA assets. But here too, the debt hasn’t been paid off by them,” said Rohatgi.

In a counter-affidavit filed before the tribunal, ArcelorMital said Numetal is ineligible despite the changes in shareholding. Ravi and Rewant Ruia, by virtue of being father and son, are deemed to be “persons acting in concert”, it claimed.

ArcelorMittal, represented by Abhishek Manu Singhvi as legal counsel, said the company had sold its stake in Uttam Galva KazStroyService before the cut-off date for submitting the Essar Steel bids and hence there was no issue regarding their eligibility.

He claimed the original expression of interest submitted for Essar Steel by Numetal consisted mainly of Aurora Enterprises Ltd and Essar Communications are the stakeholders. Singhvi also said that the Rs500 crore earnest money deposited by Numetal during the initial bidding round was from Aurora Enterprises.

“The contention that Aurora Enterprises is merely a passive investor in Numetal is also clearly a device, sham and a façade. This is evident from the manner in which Numetal and Aurora Enterprises were incorporated on the same date in Mauritius for the purpose of submission of a resolution plan in respect of the corporate debtor and further from the fact that the entire earnest money deposit of Rs500 crore was funded by AEL and not by the other shareholders/constituents of Numetal,” Singhvi told the tribunal.

He said that the request for proposal (RFP) conditions require that permission of the committee of creditors be obtained for any change in the composition of the bidding consortium, particularly when there is an accompanying change in control. This was not done in the case of Numetal, especially when VTB came in as the largest shareholder, ArcelorMittal alleged.

“Numetal is a body corporate and not a consortium. Hence, individuals cannot be taken into account unless they have management control. In this case, Rewant is not in control of Numetal and is only one of the shareholders of the entity,” according to legal counsel Janak Dwarkadas who appeared on behalf of Numetal.

Total debt of Essar Steel stands at Rs52,572 crore of which Rs49,230 crore was financially admitted debt and Rs3,357 crore is operational debt, according to Ravi Kadam, legal counsel for CoC. Essar Steel runs a crude steel capacity of 10 million tonnes per annum at Hazira in Gujarat.

The 2 April round of Essar Steel bidding saw participation from ArcelorMittal Netherlands NV-Nippon Steel and Sumitomo Metal Corporation (NSSMC) duo, Vedanta Plc and JSW Steel Ltd joining hands with Numetal Mauritius.

The matter is scheduled for further hearing on Thursday.