India: The CCI And The IBC In The Context Of The Indian Steel Sector

Last Updated: 7 November 2018
Article by Prerna Parashar

About 30 million tonnes of steel is lying under bankruptcy proceedings in India, and is waiting to be taken over by new management under the Insolvency and Bankruptcy Code, 2016 (IBC). The battle for these facilities has seen several companies hotly contesting with one another for the win. Where the applicable thresholds were breached, approval was also required from the Competition Commission of India (CCI/ Commission). Earlier, this could potentially wait until the IBC process was completed and a clear front runner emerged. However, due to an amendment to the law in August 2018, it was made mandatory that approval of the CCI is obtained prior to the approval of a resolution plan by the committee of creditors (CoC). This has, or will in the near future, create a unique situation that the CCI will have to deal with.

The IBC was enacted by Parliament to ensure timely resolution of insolvent companies by placing them under temporary management of an independent professional, and inviting willing suitors to submit their resolution plans for the insolvent company. Several steel companies quickly found their way before the relevant National Company Law Tribunal (NCLT), the authority overseeing the process and stamping its final approval. The IBC mandates a 180 day period which is extendable to 270 days for the completion of the resolution process. However, it has been finding it hard to stick to the prescribed time-frame owing to the litigation initiated by ousted promoters or losing bidders, and courts still settling certain substantive issues.

Prime examples of this are the insolvency proceedings in the case of Essar Steel India Limited (ESIL) and Bhushan Power and Steel (BPSL). Though insolvency proceedings were initiated for both companies more than 15 months ago there is no resolution in sight and neither has any final liquidation been made.

The role of the CCI

The CCI has the power to unconditionally approve, conditionally approve, or prohibit combinations, depending on the likely appreciable adverse effect (AAEC) of the transaction, on competition in the relevant markets in India. When faced with transactions involving IBC companies, it has taken special care to approve the transactions as soon as possible given the intent behind the strict timelines under the IBC.

The Commission, of late, has been assessing combinations in the steel sector, passing successive orders approving the transactions relating to companies under the IBC process. During the current fiscal alone, the Commission has unconditionally approved Tata Steel Limited's acquisition of 75% or more of the total equity share capital of Bhushan Steel Limited (BSL), as well as approved AION Investment (AION) and JSW Steel Limited's acquisition of Monnet Ispat and Energy Limited (Monnet) on 25 April 20181 and 11 May 20182. On the same day, 11 May 2018, the Commission has also approved Vedanta's acquisition of Electro Steels Limited. On 06 August 2018 and 18 September 2018, the CCI approved Tata Steel's proposed acquisition of BPSL as well as ArcelorMittal India Private Limited's (AMIPL) proposed acquisition of Essar, India's fourth largest steel maker.

A brief snapshot of the CCI's assessment in each of these is provided below:

  1. Tata Steel/ BSL

    The Commission examined the market on the horizontal overlaps between the parties that existed in the following finished flat carbon steel products:

    1. Hot rolled coils and sheets and plates;
    2. Cold rolled coils and sheets;
    3. Surface coated products (including galvanized products and colour coated products);
    4. Flat steel tubes and pipes (including precision and non-precision tubes).
    The Commission unconditionally cleared the transaction under Section 31(1) of the Act, finding the combined market shares of the Parties to be less than 30% in all the overlapping products on the basis of installed capacity and domestic sales; the presence of close competitors and the possibility for competitors to increase production since the average capacity utilization rates were not 100%.
  2. AION / JSW Steel/ Monnet

    While approving the combination, and holding that the horizontal overlaps were not likely to cause AAEC, due to the presence of various non-integrated or secondary steel producers, the Hon'ble Commission analyzed the overlaps in the manufacture and sale of:

    1. Pig iron;
    2. Sponge iron;
    3. Semis (specifically Billet/ Blooms);
    4. Long Products – TMT Bars.
  3. Vedanta/ Electro steel

    The Hon'ble Commission approved Vedanta's acquisition of 90 percent of equity share capital of ESL, finding that the combined market share of the Parties in the market for manufacture and sale of pig iron is not significant and that there are other existing players in the market such who will give competitive constraints to the Acquirer.
  4. Tata Steel/ BPSL

    Subsequently, in yet another race to acquire insolvent steel entities/ companies, Tata Steel approached the Commission on 02 July 2018, seeking the approval of the Hon'ble Commission in relation to the acquisition of up to 100 per cent of the total issued and paid up share capital of Bhushan Power and Steel Limited. BPSL was also undergoing insolvency resolution proceedings initiated under the Insolvency and Bankruptcy Code, 2016 and the Commission unconditionally granted its approval to the said transaction on 06 August 2018, finding that despite horizontal overlaps in the market of flat carbon products, the presence of several competitors continues to exert competitive constraints on the Tata Steel.3
  5. ArcelorMittal/ Essar Steel

    The Hon'ble Commission has also approved the acquisition of Essar Steel India Limited, which was engaged in the manufacturing and sales of various steel products including hot rolled products, cold rolled products, coated products, etc., by AMIPL, in accordance with the provisions of the IBC. The Commission, considered the relevant markets and unconditionally approved the said transaction on 18 September 20184, finding no appreciable adverse effect on competition, due to the presence of several competitors.

JSW also threw its hat in the race for BPSL in August, post the amendment to the IBC and secured approval on 18 September 20185, with the CCI finding that the combined entity was not likely to have the ability or incentive to foreclose any market for competitors, thereby not likely to have an appreciable adverse effect on competition.

IBC timelines

Though the IBC mandates a maximum period of 270 days for the completion of the resolution process, the litigation initiated by the erstwhile promoters and interested bidders has derailed this.

The corporate resolution insolvency process for Essar began in August 2017. Resolution plans were submitted by AMIPL as well as Numetal. However, in March 2018, both the bids were declared ineligible by the Resolution Professional under Section 29A of the IBC and both the entities were asked to submit fresh resolution plans. Fresh bids were submitted by these two companies as well as by Vedanta Resources Ltd in April 2018. The NCLT declared both bidders ineligible. Appeals were filed before the National Company Law Appellate Tribunal (NCLAT), which allowed the CoC to take into account the bids submitted provided the ineligibility was cleared. Finally, the Supreme Court, on 04 October 2018 found both AMIPL and Numetal to be ineligible and granted one last opportunity to both the resolution applicants to clear their ineligibility and resubmit their resolution plans. On 17 October 2018, AMIPL paid INR 74.69 billion to the banks and on 19 October 2018 it was declared the highest bidder for ESIL, more than 400 days after it first submitted its bid. However, the final outcome is still unclear with both Numetal and the former promoters having approached the CoC with fresh proposals.

In yet another similar situation, the corporate insolvency resolution process for BPSL began in July 2017. Bids were submitted by Tata Steel, JSW and Liberty House in February 2018. Litigation ensued and is currently pending before the NCLAT. Though 90% of the banks have voted in favour of JSW's revised bid, even after 400 days since the NCLT ordered insolvency proceedings, there doesn't seem to be any clarity on who the final winner is likely to be.

The contention that follows

As is evident from the above, the Commission has most generously been passing its orders of approval, finding no appreciable adverse effect in the steel sector. It is important to consider that certain transactions, despite receiving the Commission's approval may have not been effectuated, since the acquiring entities may yet to be declared the highest bidder/ yet to receive the approval of the committee of creditors for their respective acquisitions of the insolvent target companies. In such a situation, while one company awaits to be declared the winner, they, in the interim are not prevented from running for another insolvent steel company. In simpler words, acquirer company 'A', having received the Commission's approval, (but not yet declared the highest bidder) for insolvent company 'B', may approach the Commission and file its notice for the acquisition of yet another insolvent company 'C' in the same sector. Thus, what this entails is that in a separate race, company A is free to run for another insolvent company like C and will have to approach the Commission for its prior approval, as made mandatory subsequent to the amendment in the IBC.

What the Commission will now be faced with is a delicate situation. It will be borne with the task of assessing company A's acquisition of insolvent company C while it is still unclear whether A would finally acquire B or not. It is thus unclear how the Commission will perceive such a situation. It is undecided whether:

First scenario

  1. It will consider the transaction to be company A's acquisition of insolvent company C (without including the market shares of company B), as despite getting the approval for company B from the Commission, in effect, company A is yet to acquire B for want of approval of the committee of creditors (CoC)/ being declared the highest bidder under the IBC proceedings; or

Alternate scenario

  1. Will it consider company A to include company B (as company A has previously received approval from the Commission for acquisition of insolvent company B and assume that it will be the final winner) while assessing the transaction for acquisition of insolvent company C.

The Commission has not yet been faced with such a scenario. With the Indian steel consumption likely to grow, the battle for the bankrupt companies will intensify. Potential suitors will grab this opportunity in order to acquire a bigger share of the steel market as steel prices have evidently been on a rise. Along with this, even creditors will finally have a ray of hope to be repaid and, given the amendment to the IBC, it is highly likely that the Commission will stumble upon the situation where acquirer company A would knock its doors for acquisition of more than one insolvent company. At that stage, adopting any of the two scenarios to resolve the contention at hand, seems to be putting the Commission in a fix.

Therefore, given the uncertainty in who will eventually win the bid for which insolvent entity, the Commission may deem it appropriate to conduct a two-pronged analysis – (a) considering A as a stand-alone entity and (b) assuming B to a part of A. No doubt the CCI would lean in favour of the latter. The problem arises due to the fact the result may be poles apart. While looking at A alone along with C, the CCI may find that no AAEC arises and therefore be willing to unconditionally clear the transaction while on the other hand, may raise concerns when B is added to the mix, which may result in the CCI requiring modifications to be made to the transaction.

Whether the Commission passes an order that encompasses both possible outcomes is an open question, but one that it may have to decide very soon. The pragmatic approach would suggest that it must be read into the scheme of the legislation. The other option would be to pass two separate orders, which again would raise the same legal questions.

Footnotes

1.* Prerna Parashar is an Associate in the Competition Law Practice Group at L&L Partners Law Offices. She graduated from Amity Law School, Delhi in 2016 with a degree in B.A.,LL.B. (Hons.). At the Firm, she has been engaged in various complex competition law litigations, mergers as well as leniencies across various sectors. She has represented clients engaged in various fields including pharmaceuticals, automotive industry, auto parts, aviation etc. before the Competition Commission of India, National Company Law Appellate Tribunal, High Court of Delhi as well the Supreme Court of India. She can be reached at pparashar@luthra.com.

Combination Registration No. C-2018/03/562 https://www.cci.gov.in/sites/default/files/Notice_order_document/Order%20-%2025.04.2018.pdf

2. Combination Registration No. C-2018/05/03/561

https://www.cci.gov.in/sites/default/files/Notice_order_document/Order%2031%281%29%20-%2011.05.2018%20-%20for%20uploading.pdf

3. https://www.cci.gov.in/sites/default/files/Notice_order_document/C-2018-07-581%20%28for%20uploading%29_0.pdf

4. https://www.cci.gov.in/sites/default/files/Notice_order_document/Order_593.pdf

5. https://www.cci.gov.in/sites/default/files/Notice_order_document/Order_594.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Prerna Parashar
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions