The audit report says that there are several regulatory cases pending against both companies, which make them ineligible to bid for Essar Steel. A source who attended the Committee of Creditors (CoC) meeting in Mumbai on Tuesday said the Kroll report was taken on record by the lenders and it would be taken up for further discussion in the next CoC meeting. Kroll had examined 2,000 companies across the world and in over 80 jurisdictions connected to both bidders and promoters. Some of the lenders are also of the opinion that despite the report, both companies should be allowed to bid so that there is more competition in the next round of bidding process. "There will be some pending case against almost any company in the world," said a source.

The lenders have also asked their lawyers — Shardul Amarchand Mangaldas to give them options in the next meeting — taking the Kroll report into account. A source said lenders will decide internally after consulting their legal teams and come prepared with options in the next meeting. During the CoC meeting, lenders also discussed an offer letter from JSW Steel which wants to bid solo for the company in the next round. The additional offer, lenders felt, would increase the value of the company. But before that the lenders would ask for bids of the second round to be opened, in which Vedanta had also made an aggressive bid, said sources.

Both Numetal and ArcelorMittal spokespersons declined to comment on the Kroll report.

A source said the lenders are also not happy with the offers made by ArcelorMittal and Numetal as both bids sought high haircut from the banks. Essar Steel owes close to Rs 440 billion to banks, while the offer from ArcelorMittal was to take over debt worth Rs 303 billion and Rs 2 billion to unsecured lenders.

Interestingly, both JSW Steel and Vedanta have won one company each in the ongoing bankruptcy process and lenders are keen that bids from both companies are permitted in the next round. While JSW Steel has emerged as the highest bidder for Monnet Ispat, Vedanta is the highest bidder for Electrosteel Steel. Both Monnet, and Electrosteel Steel had defaulted to band loans and were sent to the National Company Law Tribunal (NCLT) by banks for debt resolution.

Last week, the NCLT bench, while remanding the first round of bids made by Numetal and ArcelorMittal back to to the resolution professional and CoC and pointed to the payment of the overdue amount as a cure for resolution applicants who were promoters of non-performing assets for more than a year. The sale of shares and declassification did not absolve them of their responsibility, it had observed in the case of ArcelorMittal. However, the CoC was not to be influenced by the tribunal’s observations and was asked to take an independent view on eligibility.

Numetal is likely to challenge the NCLT order in the National Company Law Appellate Tribunal, and banks would prefer to wait for the outcome.