Public sector lenders led by Punjab National Bank (PNB) will soon file a review petition in the Supreme Court seeking a stay on the implementation of its recent judgement rejecting JSW Steel’s insolvency resolution plan for Bhushan Power and Steel (BPSL), and ordering the latter’s liquidation.
“Banks will file the review petition as public money is involved,” a senior official said on Tuesday, requesting not to be identified.
The lenders’ decision to lodge a review petition follows a prompt review of the court order by the government.
Besides PNB, the Committee of Creditors (CoC) for BPSL insolvency included State Bank of India, Bank of Baroda, Indian Bank, Canara Bank, and Indian Overseas Bank, among others.
Both the government and the lenders are acting with urgency as the SC order could potentially have serious financial implications for the public sector banks. Typically, the liquidation results in much lower recoveries for the lenders, than resolution.
JSW Steel acquired bankrupt BPSL nearly five years ago, via the corporate insolvency route. The National Company Law Appellate Tribunal (NCLAT) had approved the Rs 19,360-crore resolution plan in February 2020.
The apex court set aside the plan last week, citing “flagrant violation and contravention” of the provisions of the Insolvency and Bankruptcy Code (IBC) and the Corporate Insolvency and Resolution process(CIRP) regulations.
While delivering its order, the court made sharply critical observations against JSW Steel, CoC, the resolution professional.
On Monday, department of financial services (DFS) secretary M Nagaraju that a review of the order was already undertaken with the lenders, and that the government would finalise its approach to the judgement soon. Separately, Sajjan Jindal-led JSW Steel, the country’s biggest steel producer, also said it would review the order.
On its part, JSW Steel could seek to recover the insolvency proceeds paid out to the lenders at the time of acquisition of BPSL. According to analysts, the worst case scenario for JSW is not being able to recover any amount from the lenders.
If the court doesn’t reverse or modify the order, one option before it is to pay an incremental Rs, 100,00 crore (fair value of asset as on today versus its acquisition price), according to Kotak Institutional Equities. “As per BPSL’s annual report, JSTL has an agreement with the CoC that provides them an option/right to unwind the transaction in case of any unfavorable ruling on certain pending litigations in the SC..” it added.
Experts have reacted differently to the SC order. While many hailed it for upholding the integrity of the insolvency resolution process, others feel that while wrongdoers must be penalised, the resolution outcome must not be held hostage to a long and unpredictable judicial process.
The SBI stock closed at 776.15 on Tuesday, down 1.75% while PNB share price closed at Rs 95.35, down 4.07% from the previous closing price.