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ArcelorMittal India Private Limited v. Satish Kumar Gupta & Ors.

Civil Appeal · 2018 INSC 935Decided 4 Oct 2018
Civil Appeal Nos. 9402-9405 of 2018
Justice Rohinton Fali Nariman · Justice Indu Malhotra

Background

Essar Steel India Limited (ESIL) was undergoing corporate insolvency resolution after defaulting on roughly Rs. 45,000 crores owed to financial creditors. ArcelorMittal India Private Limited (AMIPL) and Numetal Limited both submitted resolution (revival) plans to acquire ESIL, but the Resolution Professional found both ineligible under the newly-introduced Section 29A of the Code, which bars persons connected to existing non-performing-asset (NPA) accounts from bidding. AMIPL was linked, through its parent group's past shareholding and board control, to two other companies (Uttam Galva Steels and KSS Petron) that were themselves classified as NPAs, and it had divested those holdings only shortly before submitting its bid.

Decision Breakdown

The Supreme Court examined in detail how "control," "connected person" and "related party" under Section 29A should be interpreted, and found that AMIPL's group had exercised real positive control (through shareholding, director-appointment rights, and affirmative voting rights) over both Uttam Galva and KSS Petron at the relevant time, and that the share sales divesting those holdings happened suspiciously close to the bid submission date, making them transactions designed to artificially dodge Section 29A's bar. On this basis, the Court held AMIPL (and similarly Numetal) ineligible under Section 29A(c). Rather than simply disqualifying both bidders and ending the process, the Court invoked its special constitutional power under Article 142, partly because this was the first time the law on Section 29A was being authoritatively settled, to give both bidders one final two-week window to pay off the NPAs of their related companies; if they did so, they could resubmit their resolution plans for the Committee of Creditors to choose from (alongside a plan from Vedanta), failing which Essar Steel would go into liquidation.

Lesson Learnt

Section 29A of the Insolvency and Bankruptcy Code is designed to stop persons connected to existing bad-loan defaults from buying back distressed companies through the back door, and courts will look past last-minute share transfers or boardroom resignations that appear timed purely to dodge that bar: control is judged by substance, not by a bidder's paperwork on the eve of submitting its bid.

Official source (sci.gov.in)View Judgment (PDF)

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