The Essar group hinted at challenging the verdict, citing last week's Supreme Court order that upheld the August 2018 amendment to the IBC law.
The National Company Law Tribunal (NCLT) on Tuesday rejected the debt settlement proposal put forth by the shareholders of Essar Steel saying the offer violates Section 12A of the Insolvency and Bankruptcy Code.
The Essar group hinted at challenging the verdict, citing last week's Supreme Court order that upheld the August 2018 amendment to the IBC law by adding Section 12A which allows creditors to take the company out of insolvency proceedings and allows out-of-court settlement with an upfront payment of the dues.
If it is not challenged again, this will be the first major victory for the LM Mittal-run ArcelorMittal, which is the world's largest steel maker, to the country which is one the fastest growing markets for the alloy.
His earlier attempts through joint ventures-Uttam Galwa and KS Petron ended up as failures.
The Ahmedabad bench comprising adjudicating authority Manorama Kumari and Harihar Prakash Chaturvedi said the Rs 54,389-crore bid by Essar Steel Asia Holding, which is much higher than the winning bid by ArcelorMittal's Rs 42,000 crore, is not maintainable as the only way to make a proposal is through Section 12A.
ArcelorMittal termed the verdict as "a positive development for both Essar Steel India and the country more broadly as the ruling protects the integrity of the IBC and ensures its legitimacy as a rules-based law. We now hope for a swift resolution to the case."
However, hinting at challenging the verdict, an Essar group statement maintained that it still continues to believe that its bid is the most compelling one, wherein no lender/creditor loses even a penny.
"We continue to believe our offer of Rs 54,389 crore is the most compelling proposal available to Essar Steel creditors.
“Our offer to repay all classes of creditors and fulfills the IBC's overriding objective of value maximisation that is established time and again by courts at all levels.
"We submitted the proposal under Section 12A and the recent SC judgement has established that the section's provisions are applicable retrospectively," it said.
"We will take a call on our next steps after going through the full order," the company said.
The NCALT earlier this month had given a deadline to the Ahmedabad bench to clear the case before January 31.
The 10-million tonne per annum Essar Steel is one of the newest steel mill in the country and was the crown jewel for the Ruias after its sold the flagship 20-mmillion tonne Essar Refinery last year to the Russians.
Essar Steel is one of the biggest 12 accounts that the RBI had in June 2018 referred to the NCLT.
The original promoters owed more than Rs 49,000 crore to a clutch of lenders led by SBI.
Bidding through Essar Steel Asia Holding, which owns 77 per cent in the crippled steel mill, was the second attempt by the Ruia brothers to wrest control of the company after their failed bid to do so with Numetal, a Mauritius based shell company promoted by Revant Ruia and others like the VTB Bank of Russia.
On the contention of Essar Steel Asia Holding that they have the Constitutional "right to own property", the bench made it clear that IBC overrides the said constitutional provision.
The bench also pointed out that the Supreme Court last week had upheld the Constitutional validity of Section 12A of the IBC.
It further said it does not find any illegality in the committee of creditors' decision to accept ArcelorMittal's bid which is lower than the Ruias' bid.
The bench further observed that the present plea by Essar Steel Asia Holding, which is opposed by both the lenders and ArcelorMittal, is not made as per the provisions of the 12A, and this not maintainable.
The bench will from Wednesday proceed with the resolution plan application filed by the resolution professional, it added.
Earlier, the resolution professional had submitted a proposal to pay Rs 54,389 crore to the committee of creditors, led by the State Bank.
As per resolution plan submitted by ArcelorMittal, it would pay Rs 42,000 crore to the secured lenders, while an additional Rs 8,000 crore will be kept aside for capital.
In the past hearings, lenders as well as the Lakshmi Mittal-led ArcelorMittal had opposed the debt settlement proposal made by Essar Steel Asia Holding, claiming that it is against the Supreme Court order as well as the IBC provisions.
The same stand was taken by the resolution professional today, saying it is "too late" for Essar Steel Asia Holding, which holds 72 per cent shares in the Essar Steel.
Photograph: Danish Siddiqui/Reuters