MINISTERS have admitted that Nicola Sturgeon's government may have broken state aid rules in a deal to sell steelworks to Sanjeev Gupta, reported The Telegraph.
There is growing scrutiny of the SNP's ties to the industrialist as he fights to keep his empire afloat, it was reported.
The Scottish business minister Ivan McKee said that officials have been advised of problems with part of a contract signed to push through a 2016 takeover of the facility in Motherwell, The Telegraph report added.
The SNP government bought the site for £1 from Tata Steel, then immediately sold it to Gupta's business Liberty Steel as part of a deal they claim was intended to protect jobs.
Ministers agreed to protect Tata from any future clean-up costs for environmental damage to the site.
According to the report, Sturgeon, the first minister, personally attended the reopening of the plant after securing the agreement.
The deal has been re-examined amid concerns over the viability of Liberty after its future was thrown into doubt following the collapse of Greensill Capital, the main lender to its parent company.
Gupta's businesses are now being investigated by the Serious Fraud Office. However, they denied wrongdoing.
“The rescue deal facilitated by the Scottish Government in 2016 was agreed at pace and in good faith to maintain employment at Dalzell and Clydebridge. Without our intervention the likelihood of anyone being employed producing steel plate in Scotland today would be very slim," McKee was quoted as saying by the newspaper.
“The contract arrangement has now been re-examined as part of the ongoing contingency planning process and it is considered that the clause providing the indemnity to Tata Steel may represent State aid, even though no money has, or may ever, change hands."
Willie Rennie, a Liberal Democrat MSP who is the party's economic spokesman in Scotland, said the government should come clean on whether the error could have an impact on government funds or jobs in the region.
The SNP's warning on state aid means costs for any clean-up operation at the site could fall to previous owner Tata Steel after all. Tata said the contract is binding and the Scottish government has asked UK ministers to refer the case to the European Commission.
A spokesman for Tata Steel, told The Telegraph: "We consider the 2016 sale agreement which was negotiated in good faith between the Scottish Government and Tata Steel on commercial terms to be valid and binding in all aspects.
"We would welcome further dialogue with the Scottish Government on this matter to understand its position in more detail. As this issue is connected to a potential state aid issue, we are also in dialogue with the UK Government."
The Scottish Government has faced criticism for other deals with Gupta. It came under pressure for providing "jaw-dropping" guarantees worth a total of £586m to Gupta when he bought an aluminium smelter in Lochaber.
Bob Blackman MP speaks during the event