The multinational steelmaker on Tuesday transferred Rs7,000 crore into an escrow account maintained by the State Bank of India, which leads Essar Steel’s lenders, offering to settle the debt to prove its eligibility as a bidder.

The committee of creditors (CoC) is likely to submit their choice of ArcelorMittal to the National Company Law Appellate Tribunal (NCLAT) on 17 May. However, bankers and lawyers believe that the company’s conditional offer could be challenged on the grounds that such repayment should happen prior to the submission of the resolution plan.

Under Section 29 (A) of the Insolvency & Bankruptcy Code (IBC), a person shall be eligible to submit a resolution plan if such a person makes payment of all overdue amounts with interest and charges relating to non-performing asset accounts before submission of the resolution plan.

“The cure (payment) should have happened before the submission of expression of interest. ArcelorMittal had no intention of curing. Even now they have no cure. They have only given a conditional offer as a remedy. Therefore, they are not eligible. The condition for repayment is that it should be declared as the highest bidder. As of now there is no payment,” said a banker familiar with the matter.

On 19 April, the Ahmedabad bench of the National Company Law Tribunal (NCLT) had asked Essar Steel’s committee of creditors and the resolution professional to reconsider the bids submitted by ArcelorMittal and Numetal during the first round of bidding. Both the companies had failed the eligibility criteria laid down by CoC because of their links to the other companies that have defaulted on loans.

However, NCLT had ruled that ArcelorMittal and Numetal must clear debts in defaulting companies where they hold stakes before bidding for Essar Steel again.

Last week, Numetal—backed by Russia’s VTB Capital—had challenged the same NCLT court order allowing rival ArcelorMittal to clear bank dues of associate companies so that it can become eligible to acquire Essar Steel. ArcelorMittal, on the other hand, had challenged its own disqualification from bidding in appeal before NCLAT.

The second banker mentioned said that during its presentation to the CoC, ArcelorMittal has maintained that they are “not liable” to pay the outstanding amount. “The company has not accepted the default of Uttam Galva and KSS Petron in the first plan. It has not even accepted that the bid is defective. Without prejudice to their rights to contest the decision of CoC, they deposited the money as a goodwill gesture and put a condition that it will be available to the creditors of Uttam Galva and KSS Petron provided they are declared as highest bidder,” he added.

Essar Steel owes about Rs45,000 crore to the lenders. ArcelorMittal’s bid for the stressed company is about Rs32,000 crore while VTB Bank-led Numetal consortium, the only other bidder in the first round of bids, offered to buy out the company for Rs18,000 crore.

A legal expert said putting a rider on clearance of dues is a violation of the insolvency code.

“The banks should reject such an offer that comes with riders pertaining to clearing of dues. This is an eligibility issue to be cleared at the threshold before any bid can even be considered. Awarding a bid cannot be a pre-condition to participate in the resolution process. There will be a very strong legal challenge to any such pre-condition as this is a not a matter of bilateral agreement between the lender and the bidders but a legal requirement,” said Ramesh Vaidyanathan, founder of Advaya Legal.