Renaissance Steel, one of the four bidders for the bankrupt Electrosteel Steels, has questioned whether Tata Steel and Anil Agarwal-run Vedanta are eligible to bid under the bankruptcy process for alleged breaches of the law by their subsidiaries, said two people familiar with the matter.
In a letter submitted to the Committee of Creditors for Electrosteel Steels, Renaissance has also asked whether allowing Vedanta and Tata Steel to bid would amount to a violation of existing laws. Sources told ET that Renaissance has said the two companies may be ineligible under Section 29A (d) of the Insolvency and Bankruptcy Code (IBC), which prohibits bidding by entities that have been found guilty and handed out sentencing under criminal laws.
As per the rule, companies will not be eligible to submit bids if any of their subsidiaries have been convicted for an offence punishable for more than two years. Renaissance Steel has claimed that subsidiaries of both Tata Steel and Vedanta have been convicted in the UK and Zambia, respectively, and hence they should be disqualified.
One of the resolution applicants in Electrosteel has already raised formal objections regarding the eligibility of Tata Steel and Vedanta and we are looking into the matter. The resolution professional is seeking legal opinion,” said one of the people aware of the matter. “We have also asked the resolution professional to seek an explanation from the bidders and examine the matter.”
Section 29A(d) of the IBC says that a person shall not be eligible to submit a resolution plan, if such a person or any other person acting jointly or in concert with such a person has been convicted for any offence punishable with imprisonment for two years or more.
According to the letter, Tata UK has been facing prosecution in ‘Hull Crown Court’ for breaching statutory provisions of Health and Safety at Work Act, 1974. “The punishment that may be awarded to Tata UK for the offence committed is… unlimited fine or imprisonment not exceeding two years or both,” says the letter reviewed by ET.
In the case of Vedanta Resources, its subsidiary Konkola Copper Mines (KCM) faced prosecution by the government of Zambia for pollution and harm caused to the environment in November 2010. As per the ineligibility note with lenders, KCM was convicted for breaching the statutory provisions of the Environmental Protection and Control of Pollution Act 1990.
The letter states that under the act, the offender is liable upon conviction to a fine not exceeding sixty thousand penalty units, or to imprisonment for a term not exceeding three years, or to both.
“This has significant implications on the whole resolution process. We are trying to find out whether these claims will hold true under the IBC. We received the submission only on Thursday last week. So it is too early to determine whether Tata and Vedanta would have to be disqualified because of the clause,” said another executive involved with the bidding.
Anil Agarwal-led Vedanta Group had emerged as the highest bidder for Electrosteel Steels by quoting Rs 4,500 crore, while Tata Steel’s bid was worth Rs 3,500 crore, ET reported earlier.
Renaissance Group and Edelweiss Asset Reconstruction Company had also submitted bids for a resolution plan.
