Pramod Mittal (PM), younger brother of global steel magnate Lakshmi N Mittal, suffered a major setback as a UK court overturned his agreement with creditors to pay 0.2% of his total debt of over US$2bn (billion). Pramod Mittal was declared bankrupt in June 2020 over a debt of about US$170mn (million) owed to Moorgate Industries UK Ltd (Moorgate), formerly known as Stemcor UK Ltd.
"It is unnecessary to deal with the issue of good faith and make this already long judgment longer since the application of Moorgate succeeds on the ground that Direct Investments Ltd (DIL) is not a creditor by reason of loans made pursuant to the loan agreement of 2006, and Mr Poddar (Rupam Poddar, a director of Interworld- owned by a Mittal owned company) is not entitled to vote as assignee of the purported Interworld debt. Mr Agarwal (Pankaj Agarwal, also a director of Securex with members of the Mittal family) is not an assignee of Ispat (Ispat Steel Holdings Ltd) and cannot vote, nor is Mr Satyanandan (Smijithlal Sathyanandan, an authorised signatory of Global Coke & Energy FZE, itself owned by Global Steel Holdings Ltd-GSH and in turn DIL) entitled to vote having failed to come to court to make out his claim," the court says.
The judge says Pramod Mittal is an associate of DIL within the meaning of Section 435 of the Insolvency Act 1986. "In this case, the challenged creditors were on notice of the proceedings and chose not to participate in any case management hearing or ask to be joined. This is consistent with their approach when not filing or serving any evidence to support their claims. Where no evidence is filed and served it is open to the court to make adverse inferences. I shall revoke the individual voluntary arrangement (IVA)."
Moorgate submitted that the purported assignments are to individuals affiliated with Mr Mittal due to their positions in companies that are connected with him. Moorgate says it found the assignments incredulous and, on 25 October 2020, asked Edwin & Co LLP for Mr Mittal to provide the metadata to demonstrate that the loan documents and the assignments were genuine. "The purported creditors have failed to produce the metadata. The metadata has never been provided."
Jade Moore (JM), a director of Moorgate, told the court that the failure to sufficiently respond to questions from the nominees, the inconsistency of Mr Mittal's financial position in the bankruptcy and IVA, the late production and reliance of the assignment of debt after Moorgate had pointed out that the relevant company submitting proofs of debt in the bankruptcy of PM or in the liquidation of GSH, had been struck-off, and the connection between DIL (the largest creditor in the IVA), the Prasan Trust and PM, led the company to challenge the IVA.
Moorgate had provided finance to another company within the group of companies associated with Mr Mittal, Global Ispat Koksna Industrika d.o.o (GIKI), a company incorporated in Bosnia-Herzegovina. Ispat Steel Holdings Ltd (Ispat) is a Mauritian company that claimed to be a creditor of Pramod Mittal and is the purported assignor of the debt to Mr Agarwal. Moorgate required a personal guarantee to be provided for it 'to continue to do business with (Ispat)'.
GSH was wholly owned by DIL. DIL is a company incorporated in the British Virgin Islands (BVI) and wholly owned by Prasan PTC Ltd (Prasan), a private trust company also set up in the BVI.
Ispat failed in its obligations. As a result, Moorgate took action against GSH for pursuing payment under guarantee in the commercial court in August 2013. Ispat commenced arbitration proceedings under a request for arbitration on 4 November 2013. Ispat contended that it was not liable to Moorgate for any debt and issued a crossclaim for approximately US$300mn.
Following the activity in the commercial court and the request for arbitration, GSH provided a guarantee on 13 July 2016 to secure the debts of GIKI.
Subsequently, Pramod Mittal provided an undertaking agreeing to be bound by and not challenge any finding of law or fact by the tribunal under the arbitration. He agreed, by the undertaking, that he would be liable to pay any award made within 21 days of it becoming enforceable. Once the undertaking was given, a stay of proceedings in the commercial court was granted, pending the outcome of the arbitration.
The arbitration tribunal rejected the crossclaim and made an award against GIKI on 31 July 2017 to pay Moorgate the sum of £124.87mn, plus costs of £2.16mn and interest from 14 August 2017 @5.19%.
On 30 October 2019, Moorgate served a statutory demand seeking payment of the sum due under the award. However, the demand was not paid and there was no application to set it aside. After 21 days from service of the demand, Moorgate issued a petition for the bankruptcy of Pramod Mittal on the basis that the sum of £139.78mn plus interest was due and owing.
Judge Briggs also observed an oddity in the loan agreement. "The loan agreement relied upon by DIL is dated 3 January 2006. It is an altogether unusual document. The recital states that DIL 'wishes to make a loan' to Pramod Mittal and GSH in a 'specific sum' of US$70mn with repayment to be made 'upon notice'. The loan is expressed as being unsecured, giving the borrowers entitlement to draw the sum loaned in one or more instalments."
"The oddity is that the loan agreement is specific in terms of its use; (It) shall use the loan to repay the debt towards State Trading Corporation of India (STC) and Stemcore UK Ltd. It presupposes an existing debt to those specific entities. The debt owed by Pramod Mittal to STC had not arisen at the time of the loan agreement, nor was it going to arise for many years," the judge says.
The purchase and sale agreement between STC and Global Steelworks International Inc and GSH is dated 2005. STC obtained judgment against GSH and a settlement agreement was entered in 2011. At this time, Pramod Mittal had no personal liability. It was not until 17 May 2012 that he entered into a settlement agreement with STC that included the provision of a personal guarantee under which he would be personally liable as surety for the STC debt.
"It is highly unlikely that PM or DIL anticipated that judgment would be obtained and a settlement agreement negotiated so far in advance of the loan agreement being entered. To bolster this, four years after the loan agreement was entered (2010), GSH posted strong accounts with no signs of an inability to pay debts as they fell due. It counted among its creditors an outstanding loan due from the Prasan Trust of US$22.27mn. The accounts expressly state that GSH had no contingencies or commitments," judge Briggs says.
Similarly, the personal guarantee given by Pramod Mittal to Moorgate is dated 24 January 2006, after the date of the loan agreement. Judge Briggs says, "The loan agreement is also curious in that it includes a 4% per month compound interest provision. It is unusual since the loan was not expressed to be a bridging loan where such clauses are more common (it is an open-ended loan agreement). The evidence of Pramod Mittal is that he expected his family to meet the demands made under the guarantees."
"Lastly, there is an absence of documentation to support the loans made. Two matters are certain. First, Pramod Mittal did not draw down US$70mn on 3 January 2006. This is axiomatic as no debt was owing to STC or Moorgate. Secondly, there is evidence of transfers made by DIL to STC and Moorgate. The two are not necessarily connected. The payments made to STC, for example, are said to have been made at the direction of PM. That is not a request for a drawdown. It may provide evidence of his control over the assets of DIL," the judgement says.
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