Electrosteel Steels first from RBI’s dirty dozen to exit bankruptcy
NCLT cleared the resolution plan of Electrosteel Steels Ltd, approved by the CoC with a voting share of 100% , submitted by Vedanta
Mumbai: Electrosteel Steels Ltd became the first of the 12 large loan defaulters identified by the Reserve Bank of India (RBI) to win court approval to exit bankruptcy.
The Kolkata bench of the National Company Law Tribunal (NCLT) on Tuesday cleared Vedanta Ltd’s Rs5,320 crore resolution plan for Electrosteel, rejecting objections of an unsuccessful bidder, which had challenged the decision of the lenders on the ground that Vedanta was ineligible to bid for stressed assets under the Insolvency and Bankruptcy Code (IBC).
RBI had ordered lenders to refer Electrosteel to a bankruptcy court in June 2017, along with 11 other companies. Electrosteel, which is setting up a 2.5 million tonne steel plant near Bokaro, owes lenders Rs13,395 crore. The NCLT approved resolution plan for Electrosteel entails a more than 50% haircut for lenders, Mint reported on 31 March.
The bench’s verdict should send a message to delinquent promoters that their companies could be taken away, said Rishav Banerjee, an insolvency practitioner and a lawyer who had moved the petition for State Bank of India (SBI), one of the biggest lenders to Electrosteel.
However, a consultant who had advised SBI earlier on Electrosteel said “this is the best that lenders could have got from the derailed project”.
One of the bidders, Renaissance Steel India Pvt. Ltd had contended that one of Vedanta’s affiliates—a unit of its UK-based parent Vedanta Resources Plc—had been found guilty of criminal misconduct punishable with two or more years in jail. But based on semantics, the bench ruled that Vedanta was eligible to bid.
Though lenders of Electrosteel had taken a stand that Konkola Copper Mines, a unit of Vedanta Resources, could not be described as a “connected” entity under IBC, the bench ruled the opposite. But because only fines were imposed on the delinquent company, the bench said that Vedanta wasn’t barred from bidding for stressed assets.
Renaissance Steel had alleged that Konkola Copper Mines had admitted to flouting Zambia’s environment laws several times, and that it was an offence punishable with three years in jail.
Citing a judgement of the Supreme Court, the bench made a distinction between “imprisonment or fine” and “imprisonment and fine”, ruling that fine as an option meant the company was guilty of a “less serious offence” than what being convicted for an offence punishable with imprisonment alone would mean.
“It appears to us that an offence punishable with imprisonment is different (from) an offence punishable with imprisonment or fine,” the bench said in its order, adding that Konkola Copper Mines’ offence did not lead to Vedanta’s disqualification.
It isn’t immediately known if Renaissance Steel will challenge the NCLT’s verdict. Its bid for Electrosteel Steels was at least Rs2,000 crore lower than Vedanta’s. Lawyers for Electrosteel declined to comment.
Apart from Vedanta and Renaissance Steel, Tata Steel Ltd had also bid for Electrosteel Steels. Tata Steel’s bid was the second highest. In a separate petition, Renaissance Steel had alleged that Tata Steel, too, was ineligible to bid for stressed assets under IBC because its UK subsidiary was held guilty of criminal misconduct.
Renaissance had alleged that Tata Steel UK Ltd had flouted the UK Health and Safety at Work Act, and that the offence was punishable with imprisonment of two or more years. But in the case of Tata Steel, too, only fines were imposed.
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