Bankrupt Essar Steel Minnesota has sued Essar Global, saying the India-based firm fraudulently mishandled funds for what is now a failed $1.9 billion construction project on the Iron Range.

In court documents filed Wednesday, the Nashwauk-based Essar Steel Minnesota, or ESML — now run by a California private investment firm — outlined its case. It says Mumbai-based Essar Global illegally funneled money away from the massive construction project that had promised to bring Minnesota its first integrated iron-ore pelletizing plant and steel mill.

Today, the Essar Steel project sits half-built in Nashwauk, and the company owes creditors more than $1 billion.

Essar Steel technically still is a subsidiary of Essar Global. However, the new management is trying to bring ESML out of Chapter 11 bankruptcy as an independent company “with no ties to Essar Global.” It said in the documents that the court has granted permission to change its name to Mesabi Metallics Co.

ESML is asking the court to make Essar Global repay more than $1 billion that was “fraudulently transferred” to other subsidiaries owned by the India-based company. The money was “everything [ESML] was obligated to spend under the governing project contracts.” The lawsuit also accuses Essar Global of promising but failing to reimburse it for millions of dollars spent on supply purchases.

“These circumstances resulted from a course of conduct in which Essar Steel Minnesota was treated as if it existed solely for the benefit of the Essar Global enterprise, without regard for ESML’s interests or its creditors,” the lawsuit said.

Representatives of Essar Steel Minnesota could not be reached for comment.

Manish Kedia, a senior vice president of Essar Services in India, said in an e-mail that the allegations were unfounded.

“Essar Global Fund Limited (EGFL) is aware [of this week’s lawsuit] and denies all of the allegations set out in the complaint, which it will vigorously contest,” Kedia said. “EGFL regrets these allegations have been publicly disclosed … prior to EGFL having the opportunity to correct and rebut these unfounded allegations.”

The lawsuit said Essar Global’s actions caused cash shortages and severe delays in the Nashwauk project. ESML attorneys said it will now take “hundreds of millions of dollars more” to finish the plant in northeastern Minnesota.

Essar Global bought Minnesota Steel Industries in 2007, renamed it Essar Steel Minnesota and broke ground on the Nashwauk iron pelletizing plant in 2008.

However, due to its financial woes, the company shut down construction several times over the years. The project stalled again in April, and Essar Steel filed for bankruptcy in July after failing to pay contractors, laying off workers and defaulting on $66 million in state infrastructure loans.

Last summer, after months of threats and legal wrangling, Minnesota Gov. Mark Dayton ordered state officials to terminate Essar’s mineral leases in the state. The mineral lease termination is being challenged by Essar and also will be decided by the court.

In the meantime, there have been many changes at Essar Steel Minnesota. Matthew Stock was appointed as its CEO in July. California-based SPL Advisors LLC has pledged an initial $250 million in equity financing and to raise an additional $650 million in debt financing so that the Nashwauk project could resume construction.

Stock succeeded Madhu Vuppuluri, who resigned as CEO in July after 10 years at the helm of the project.

Vuppuluri is named in Wednesday’s court filing. He also resigned from ESML’s board of directors, as did Prashant Ruia. Those two resignations mean there no longer is anyone left on Essar Steel’s board that is from Essar Global, court documents said.

Mark Phillips, commissioner of the state’s Iron Range Resources and Rehabilitation Board, said word of the lawsuit spread across the Iron Range.

Stock and officials at SPL “are working hard raising money to finish the plant,” Phillips said.

“They are trying to raise something like $800 million. But they found out through their due diligence that [prior earmarked funds] looked like they went to pay for other stuff.”