Lenders of Essar Steel move towards preventing backdoor entry of defaulting promoter

Lenders of Essar Steel are set to impose a stiff condition on the bidders of Essar Steel to prevent back door entry of defaulting promoters. Banks led by State Bank of India are set to insert a new condition that the entity that is awarded Essar Steel will be barred from selling their equity stake in the bankrupt steel company to any other company that is not compliant with the Section 29 (A) of the Insolvency and Bankruptcy Code, said two senior officials who did not want to be named.

The Section 29 (A) bars wilful defaulters and other defaulting promoters from submitting a resolution plan for the company. Even those companies that are prohibited by Sebi for trading or accessing securities market are not eligible under this rule.

This condition will come up for discussion when committee of creditors meet today to consider an option to invite fresh bids for Essar Steel. Last week, the resolution professional had conveyed to lenders that both– ArcelorMittal and Numetal - bids are not eligible under the Section 29(A) of IBC. RP has suggested that those entities who had given expression of interest would be invited submit binding bids. This includes Tata Steel, Vedanta and Nippon.


“The move to impose this condition is to ensure the defaulters do not game the system and also to prevent a backdoor entry of defaulting promoters,” said a senior bank official quoted above. “We have to follow the spirit of the bankruptcy law which says that a defaulter can acquire a company only if they pay their dues and alternately they are barred,” he added.

The bid submitted by Numetal - a joint venture between VTB Bank and Rewant Ruia - was not deemed eligible as the legal experts said that Rewant Ruia, son of founder promoter Ravi Ruia could be seen as related party under Section 29(A) of IBC. If 75% lenders vote in favour of imposing the condition, it may prevent Ruias from acquiring Essar Steel in future, said lenders.