Many are watching how ‘connected persons’ clause of the Section 29A under IBC is interpreted
Even as Lakshmi Mittal-owned steel firm ArcelorMittal on Monday contested the resolution professional (RP) of Essar Steel's decision to term its bid ineligible before the Ahmedabad bench of National Company Law Tribunal (NCLT), some industry sources, who spoke to DNA Money off-the-record, wondered whether past default by LN Mittal's brother Pramod Mittal could also possibly derail its attempt to acquire the Ravi Ruia-owned steel firm.
A source, who did not want to be named, said that bank default by Pramod Mittal in Ispat Profile and Gontermann Peiper could be a violation of the 'connected persons' clause of the Section 29A under the Insolvency and Bankruptcy Code (IBC) law.
"Pramod Mittal is the younger brother of L N Mittal, whose ArcelorMittal is looking to bid for Essar Steel. He is a bank defaulter in Ispat Profile and Gontermann Peipers in India. So, the IBC section will not allow ArcelorMittal to bid for any IBC assets in India, as per ordinance," said the source.
As per an order issued around 4-5 years back by a Board for Industrial and Financial Reconstruction (BIFR) bench, the principal amount reportedly due towards the Stressed Asset Stabilisation Fund (SASF) by Ispat Profile was Rs 84.26 crore with total outstanding of Rs 1,213.31 crore. According to various reports, the SASF was created to take over the bad loans of IDBI when it converted into a bank. Besides this, Ispat Profiles had total outstanding of Rs 170 crore towards the Asset Reconstruction Company of India. It also reportedly had a total outstanding of Rs 168 crore towards State Bank of Bikaner and Jaipur, Dena Bank and Indian Bank.
Interestingly, even though the younger Mittal was reportedly the chairman of the company at the time it was referred to the BIFR, none of the brothers' names were on the Board of directors.
The bench had reportedly observed that Ispat Profile had not make any serious efforts in settling the dues of either its secured creditors, workers or statutory bodies, resulting in a liability of over Rs 300 crore.
"Under such circumstances, there is a remote chance of company's revival. On the two consecutive hearings held on February 11 and April 22 this year (2013), the Board asked IFCI to submit a comprehensive report on the possibility of company's revival under the present management, keeping in view the outstanding liabilities against the company. But the proposition of company's revival has not emerged," the bench had then observed.
To the query sent to the company, Azhar Khan, spokesperson of the ArcelorMittal, said, "There is no connection between our eligibility and the businesses of Mr Mittal's brother (Pramod Mittal). Any attempts to claim otherwise are wrong and without any legal basis".
He further added, "In the notification received from the RP it is very clear there is only one reason why we were deemed ineligible and that is the fact that although we had sold our shareholding in Uttam Galva before submitting our offer we had not been formally declassified on the stock exchanges. We have announced today we are challenging this in court as we believe our bid was fully eligible and should not be considered otherwise due to this technicality."
A legal expert with a leading law firm, who spoke on condition of anonymity due to the sensitivity of the matter, said the 'connected persons' under the Section29A of the IBC was extremely ambiguous in its definition.
"The way connected person has been defined, it includes the entire world. The way it is under one of the sub provisions that also includes related party, it includes everything in and around the person who is the subject matter of the insolvency resolution case," he said.
On the specific case of Ispat Profile, he said; it can be argued that; does his (L N Mittal) brother have a role in the company? These are very fact-driven issues and one has to analyse these because if you cherry-pick these issues, then nobody can ever bid for a company because every second person is close to being a defaulter".
The legal expert argued that by just saying someone is related and has defaulted was not enough to disqualify a bid; "It needs closer examination of the facts. It would not be right on my part to yes or no without going through facts".
According to him, connected person was "loosely" defined in the IBC law and needed to be clearly articulated.
More than two sources confirmed that the government was working on coming out with amended IBC law, which could see, among other alterations, the 'connected persons' redefined under the Section 29A.
Some of them are expecting these rectifications in the IBC law to be done before the last date of April 2 for submitting a fresh bid for Essar Steel. This could work in favour of ArcelorMittal.
Sajjan Jindal, managing director of JSW Steel, who has been disallowed by the committee of creditors (CoC) from bidding in the fresh round for Essar Steel, as he had not submitted an expression of interest earlier, on Monday slammed the way the resolution process was being carried out under IBC.
"Just by selling shares (read in Uttam Galva), some defaulting promoters become eligible then it is not in the spirit of law. (It is a) Mockery of IBC as defaulting promoters are bidding for NPAs (non-performing assets)," he told the press.
BLAST FROM PAST
- Many are watching how ‘connected persons’ clause of the Section 29A under IBC is interpreted
- The younger brother of promoter of ArcelorMittal reportedly defaulted in Ispat Profile
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