The world's largest steel company ArcelorMittal, which is being tested for eligibility to bid for the stressed Essar Steel asset, has deposited ₹7,000 crore in a current account with State Bank of India contrary to its earlier claim of putting the money in an escrow account.
The fact was revealed recently by Essar Steel committee of creditor's counsel at the National Company Law and Appellate Tribunal, which was hearing a plea on the eligibility of both ArcelorMittal and Numetal, a consortium promoted by Russian VTB Bank.
An escrow account is a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties.
After being declared ineligible to bid for Essar Steel, ArcelorMittal last May claimed that it had deposited ₹7,000 crore into an escrow account with the SBI to show its commitment towards settling the debt of Uttam Galva Steels and KSS Petron.
ArcelorMittal knows that the money put in an escrow account does not earn any interest, while the current account generates a minimal return. Moreover, once the money is in escrow, it cannot be arbitrarily withdrawn, said a banker.
Given the uncertainty on its eligibility and the time taken to resolve the issue, the company would have found it wise to keep it in current account, he added. Reacting to the CoC counsel's claim on money put in current account, Abhishek Manu Singhvi, appearing for ArcelorMittal said in NCLAT that, “here is a reliable person (the company) who has put his money where his mouth is, while Numetal has not paid a single penny.”
Numetal was disqualified from bidding as it had shareholding of Rewant Ruia, son of defaulted Essar Steel promoter Ravi Ruia.
The consortium was told to clear the entire Essar Group's default to make itself eligible for bidding. In the second round of bidding, Rewant Ruia was replaced by JSW Steel and had Anil Agarwal-owned Vedanta as a new bidder.
However, NCLT gave one month time to both the bidders to cleanse themselves of defaulter tag and be eligible for bidding.
This was contested by both companies in NCLAT even while ArcelorMittal deposited ₹7,000 crore to clear the default of Uttam Galva and KSS Petron in which it had minority share.
Interestingly, in the first round of bidding ArcelorMittal had placed a ₹32,000-crore bid, while Numetal revised its ₹18,000 crore bid to match that of ArcelorMittal.
The second bid is yet to be opened. Lenders have put Essar Steel on insolvency process to recover ₹49,000 crore loan default.