The Supreme Court on Tuesday asked Russia's VTB Bank-promoted company NuMetal to establish that there was "subterfuge" on part of its rival bidder ArcelorMittal in divesting its shares in two debt-ridden firms before bidding for Essar Steel.
The observation by a bench of Justices R F Nariman and Indu Malhotra came when NuMetal accused steel and mining major ArcelorMittal of cheating Indian banks of Rs 7,000 crore owed by Uttam Galva Steels Ltd and KSS Petron by selling its shares just before bidding for Essar Steel.
During the day-long hearing, senior advocate Mukul Rohatgi, appearing for NuMetal, alleged that ArcelorMittal had disposed off its shares in a "tearing hurry" and this was contrary to the 'non-disposal' agreement signed with the bankers that the stakes in Uttam Galva cannot be sold without taking the consent of the lenders.
"Instead of paying dues to the banks, it (ArcelorMittal) says that it was aware of the disqualification. The only manner known to law to get rid of disqualification is to pay. The payment of dues of Uttam Galva is the condition precedent to apply for the bid. There was no scope of post-facto payment of dues," Rohatgi said.
The bench said irrespective of the claim that ArcelorMittal was the promoter at Uttam Galva, it has provided the documents to establish that it was not managing the affairs of Uttam Galva. They were also not on its board and there was only a "co-promotion agreement" between them.
"There has to be subterfuge. There have to be documents to assume that this (sale of shares) was part of a devious and fraudulent design," the bench said, adding, "you (NuMetal) will have to show that they were the active promoters of Uttam Galva" and the fact that they (ArcelorMittal) owed the debt to "start with".
Rohatgi said that ArcelorMittal was also the promoter of debt-ridden entities Uttam Galva and KSS Petron and exited just before the bidding for Essar Steel.
"The bankers of Uttam Galva have a non-disposal agreement, and as per it, the promoters cannot sell their shares without the consent of lenders and sale of shares was to cheat the lenders," he alleged.
Senior advocate Harish Salve, appearing for ArcelorMittal, objected to the submissions of Rohatgi and asked whether his submissions were part of the records. To this, the NuMetal's counsel said he would deal with this aspect tomorrow.
Initiating submissions on behalf of NuMetal, Rohatgi said he would establish that the firm was eligible to bid for Essar Steel and no disability can be attributed to it just because some adverse findings have been recorded against VTB Bank of Russia by the authorities in the European Union and the USA.
The alleged actions against VTB were due to political actions taken by a comity of nations which are part of EU, just to "tighten screw on Russia" for its actions in Ukraine.
"There is no ban on VTB for its banking activities or for it to mobilise funds and conduct market activities," he said, adding that the apex court cannot decide on the disability of VTB based on some adverse findings.
He said the test would be whether a market regulator of other countries like Sebi here have recorded adverse findings against VTB and the actions of some nations or comity of nations against the firm due to some political reasons, "cannot be a ground to disqualify it from bidding for Essar Steel".
There was "no taint" on NuMetal, rather it was on ArcelorMittal whose bid should have been rejected as it had flouted the main condition of not clearing the dues of defaulting companies associated with them before submitting its bid.
He referred to the condition before the Section 29-A was brought into the Insolvency and Bankruptcy Code providing further criteria for disqualification.
Rohatgi said the shareholders of NuMetal changed with the change in the law that the promoters of a defaulting company cannot bid for the same entity.
"What was wrong in that? ...Both Numetal and Arcelor were asked to curate and we did and they did not," he said, adding that Rewant Ruia of Arora Enterprise Ltd (AEL) exited before the filing of the second bid.
On Numetal acting in concert with Rewant, son of Ravi Ruia who was in control of defaulting Essar Steel, Rohatgi quoted Sebi's takeover code of 2011 to say that it could be possible only if he had controlling stake in the bidding company or intended to have.
Salve, earlier in the day, concluded his submissions and opposed the allegations that steel magnate L N Mittal's relatives were associated with a lot of defaulting companies.
The advancing of arguments remained inconclusive and would commence tomorrow.
Earlier, ArcelorMittal had said that NuMetal was not eligible to bid for Essar Steel on several grounds, including that it was a "shell company" created by a firm in which Essar group promoters had majority shares.NuMetal, a consortium of Russia's VTB-JSW, has also filed an appeal challenging the National Company Law Appellate Tribunal (NCLAT) order allowing ArcelorMittal to take part in the bid and alleged that the firm stood disqualified due non-deposition of the money.