Mittal quibble in Essar battle

The Mittals have submitted a Rs 42,000-crore bid for Essar Steel which is being bitterly contested by the Ruias

By Sambit Saha in Calcutta
  • Published 21.05.19, 12:58 AM
  • Updated 21.05.19, 12:58 AM
  • 2 mins read
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ArcelorMittal has drawn a fine distinction between “promoter” and “promoter group” to puncture the claim that it would be ineligible under the provisions of section 29A of the Insolvency and Bankruptcy Act (Shutterstock)

ArcelorMittal has drawn a fine distinction between “promoter” and “promoter group” to puncture the claim that it would be ineligible under the provisions of section 29A of the Insolvency and Bankruptcy Act (IBC) to acquire Essar Steel because of ties to a Calcutta-based company that belongs to the brothers of Lakshmi Niwas Mittal, the CEO and the largest shareholder of the company.

Under section 29A, the promoter of a company that defaults on a loan cannot bid under the IBC process for a stressed asset unless he clears it. The section applies to promoters; the Mittals have argued that it cannot cover a member of a promoter group that has a teeny-weeny stake in a defaulting firm that he doesn’t actually run.

The Mittals have submitted a Rs 42,000-crore bid for Essar Steel which has been accepted by the committee of creditors but is being bitterly contested by the Ruias.

The company is battling charges levelled by Prashant Ruia, existing promoter of Essar Steel, that AM would be ineligible because L.N. Mittal held shares in Navodaya Consultants, which is a promoter of two non performing assets — Goentermann Peipers and GPI Textiles.

AM submitted that L.N. Mittal, CEO of ArcelorMittal, was “at best a part of the promoter group of NCL and not a promoter and hence the ineligibility tag would not disqualify it from the Rs 42,000-crore bid”.

“Even if the averment stated in the application are taken on the face value, L.N. Mittal is not a promoter of NCL but is part of the promoter group at best since the definition of “promoter group” includes, inter alia, an “immediate relative of a promoter” (i.e. any spouse of the person, or any parent, brother, sister or child of the person or of the spouse).

“Clearly, the disqualification under section 29A(c) of the IBC does not extend to member of the promoter group,” the written submission before the National Company Law Appellate Tribunal read.

N.G. Khaitan, partner at Khaitan & Co, said he agreed with the argument. “I totally agree that he (L.N. Mittal) is part of the promoter group and not a promoter under any stretch of imagination. The need of the hour is to interpret law in a broader way.”

Incidentally, Numetal, which was once competing with ArcelorMittal for Essar, was found ineligible under section 29A because of the presence of Rewant Ruia, son of Ravi Ruia, promoter of Essar Steel.

Arguments

Earlier in the month, Prashant Ruia had argued that AM would be falling foul of 29A because L.N. Mittal continued to have a business relation with brother Pramod and Vinod Mittal. He buttressed the claim with L.N. Mittal’s shareholding in Navodaya and the help provided to his brother to settle a statutory due earlier this year.

Terming the application “as one of the multiple malafide attempts to derail” the insolvency process of Essar, the company said the argument was already rejected by Supreme Court.

Taking on the Ruias on “merit”, it said the Ruia application “conveniently omits to mention” that L.N. Mittal only held 10 shares in Navodaya, representing 0.00058 per cent stake in the company (as reported by The Telegraph on May 7). It also pointed out that NCL holds only 0.91 per cent shares in GPI and 11.61 per cent in GPT Textiles and that L.N. Mittal did not own any shares of those companies.

On the payment made to Promod Mittal, it said: “Such funds have been paid on account of familial ties to assist the brothers in avoiding criminal prosecution ... does not mean that they are doing business together.”