Essar Steel Insolvency: Ruias’ Proposal To Retain Essar Steel Unlikely To Succeed, Say Lawyers

The latest offer by the Ruias is mala fide and an attempt to scuttle Essar Steel’s insolvency process, lawyers say

Prashant Ruia, Director of Essar Capital, speaks to BloombergQuint. (Photographer: Vijay Sartape/BloombergQuint) 
Prashant Ruia, Director of Essar Capital, speaks to BloombergQuint. (Photographer: Vijay Sartape/BloombergQuint) 

The offer by Essar Steel’s promoters—the Ruia family—is an attempt to defeat the procedure prescribed under the bankruptcy law, scuttle the process and cause confusion, lawyers told BloombergQuint.

On Thursday, the Ruias offered to pay Rs 54,389 crore to Essar Steel’s creditors saying it will amount to 100 percent recovery of all dues, including those of operational and unsecured creditors.

“If this was a movie, it could not have been scripted better,” Nilang Desai, an insolvency partner at law firm AZB & Partners, said.

The Ruias said that section 12A of the Insolvency and Bankruptcy Code, 2016 allows the Committee of Creditors to permit the withdrawal of an insolvency application.

This section was introduced in June. The next month a new regulation under the IBC stated that withdrawal of insolvency application can be made till invitation is issued for expressions of interest. In the Essar Steel case, EoIs were invited last year.

Shardul Shroff, managing partner at Shardul Amarchand Mangaldas, said the Ruias are attempting to make a backdoor entry. “This attempt is mala fide and they are seeking to mislead the lenders.”

Shroff’s firm is advising the Essar Steel CoC, though he clarified that his comments were in a personal capacity.

According to Shroff and Desai, the Ruias’ offer was unlikely to be seriously considered by the CoC. Their reasons are...

  • The Supreme Court had directed Numetal to pay the overdue amounts of Essar Group companies that have been declared a non-performing asset. The apex court had recognised Numetal to be a front for the Ruias, Shroff pointed out. So the condition of clearing the overdue amounts of all Essar Group companies would apply to the Ruia family. And since this latest offer by them has not fulfilled this direction, it cannot be entertained.
  • The window of two weeks granted by the Supreme Court to Numetal to become an eligible resolution applicant has expired.
  • That the IBC did not envisage withdrawal of an insolvency application. Section 12A that allows for withdrawal of an insolvency application was introduced in June 2018 and hence does not apply to Essar Steel that was admitted to an insolvency resolution process last year.
  • Even if this section were to be applicable, it allows for an insolvency application to be withdrawn only before the resolution professional issues invitation for expressions of interest. Essar Steel’s insolvency process has crossed that stage.

The Ruias have said in a statement that they should get the benefit of section 12A.

Section 12A was introduced in June 2018 and for the cases which were beyond EoI (Expression of Interest) stage a reasonable view can be taken that an opportunity should be given to all ongoing cases to withdraw from corporate insolvency process by giving full recovery to secured lenders (with consent of 90 percent lenders). Our proposal offers maximum value to all stakeholders and provides 100 percent repayment to the lenders.
Ruia Statement

Watch the debate here

Meanwhile, Essar Steel’s committee of creditors has already approved ArcelorMittal’s resolution plan, two officials involved in the matter told BloombergQuint. The CoC finished the voting process today and 92.4 percent votes were cast in favour of ArcelorMittal’s plan that has offered Rs 42,000 crore to Essar Steel’s financial creditors, the officials said.