Ruias re-entry for Essar Steel seen as last resort to gain control, delay process

"The move (by Essar) is something that they can throw in and see how the CoC (committee of creditors) reacts to it,” said Nilang Desai, an insolvency partner at law firm AZB & Partners.

Late evening on October 25, the CoC is said to have approved ArcelorMittal's offer of Rs 42,000 crore to Essar Steel's financial creditors, with a majority of 92.4 percent of CoC.

On the same day, the offer by Ruias, a loan defaulter barred from bidding its own company as per IBC, seems to be an intentional spin to the losing battle for the family, says another lawyer.

Accept or Reject?

Either bankers can take a bold option to accept this late and unusual offer or a bold step to reject such a huge offer.

Or maybe, as Desai points out, banks go to the National Company Law Tribunal (NCLT) saying they need clarification of the law on this point.

"Then it may go to the NCLAT (National Company Law Appellate Tribunal) and later to the Supreme Court, which can chose to use its discretion and powers under Article 142. The article allows to pass such order it considers necessary in the interests of justice (including taking a company out of IBC)," Desai adds.

The Ruias said that section 12A of IBC allows the creditors to permit the withdrawal of an insolvency application.

This section was introduced in June this year.

In July, a new regulation under the IBC stated that withdrawal of insolvency application can be made till invitation is issued for expressions of interest (EoI). In the Essar Steel case, EoIs were invited last year.

However, lawyers refute that under Section 12 A, it is not permissible to exit the IBC at this stage. But the apex court, when deciding a dispute brought before it, can chose to do so under Article 142, they say.

"Bankers are blank. Legal opinion says that banks have to strictly go by SC judgement which says 'to accept best of the plans resubmitted or else take the company to liquidation'," the banker said.

Why now?

In September, the Supreme Court had directed Numetal to pay the overdue amounts of Essar Group companies that have been declared a non-performing asset (NPA).

Numetal had been unable to clear dues within the two weeks deadline At the same time, though unestablished, Numetal's bid is seen as a backdoor entry for the Ruias.

According to another banker, "There is a legal rule which says 'courts will not grant relief if the party approaching it has not come with clean hands'. The rule applies with more vigour under Article 142 since it is a public law remedy."

Essar Steel is one of the 12 large corporate NPAs to be immediately referred for insolvency proceedings by the Reserve Bank of India (RBI) in June last year.

A senior banker close to the development says this is a last resort trick as they want to retain control at any cost and also waited till just before the end of the process. If they had the money, why couldn't they pay it earlier itself.

It remains to be seen if bankers open any doors for the Ruias after the final voting or the Essar Steel promoters manage to knock the court doors to further dent the process.