Even as the government has stood firm on resisting a call for easing the exclusion norms under the insolvency resolution process to retain its integrity — the latest amendments to the Insolvency and Bankruptcy Code (IBC) have only buttressed these checks — the Supreme Court has admitted a frontal challenge to the code by the promoters of Bhushan Power and Steel (BPSL) and ordered that the National Company Law Tribunal (NCLT) will not approve the bidder for the company without its permission.
In what could boost hopes for litigants aggrieved of the IBC’s basic tenets, the court also clubbed a clutch of cases of similar nature including a petition by operational creditors to Binani Cement disputing the code’s constitutional validity for joint hearing.
The matter is likely to come up for further hearing next month.
The interim order came on a petition by BPSL chairman and managing director Sanjay Singal challenging various sections of the code including Section 29A, which disqualifies defaulting promoters and connected entities from bidding for their own companies, as being ultra vires of a few articles of the Constitution.
BPSL promoters also indicated that, if allowed to bid, they would come out with an offer better than the ones received so far for the company. As per information in the public domain, resolution applicants Liberty House has offered Rs 18,500 crore, followed by Tata Steel (Rs 16,600 crore) and JSW Steel (Rs 11,000 crore). “This is much lower than the fair value of the corporate debtor. If the petitioner is allowed to be a resolution applicant, the petitioner would have provided a plan as per the fair value of the corporate debtor,” Singal said in the petition.
Liberty House’s offer of Rs 18,500 crore to the bankers is believed to have not found favour with the committee of creditors (CoC) because it felt that holistically, Tata Steel’s offer was better, given the potential capital infusion after the takeover and the firm’s expertise in BPSL’s line of business.
A bench led by justice Rohinton F Nariman while seeking response from the Centre and others said: “In the meantime, the bids will not be finalised by the NCLT without the leave of this court.”
Amendments made to Section 30 (4), Singal argued, purport to create “retrospective” ineligibilities against resolution applicants, who could have otherwise participated in the insolvency resolution process of a corporate debtor. Senior counsel Mukul Rohatgi and KV Vishwanathan, appearing for Singal, contended that in respect of BPSL, proceedings commenced on July 26, 2017, much before the amendments when there were no such ineligibilities. After this, Parliament has amended the IBC twice and the corporate insolvency process has undergone amendments seven times. So the petitioner’s rights are being altered through legislative actions continuously after the filing of insolvency action.
According to the petitioner, IBC is an “imbalanced economic provision” which is “metamorphosing into a takeover or a Liquidation Code”.
The petitioner argued that due to an imbalanced treatment of rights under the IBC, it has got converted into a pure and simple sale of corporate debtor on a “liquidation value” instead of a “going concern value”. Although government policy (such as allocation of mines to power players) and its application can cause economic loss, the reason for financial stress is wrongfully shouldered only by the promoter/management of the corporate debtor. If the extraneous circumstances can’t be remedied by the IBC, then very business would be up for sale at some point in time. This can’t be the intent of IBC, said the petitioner.
Section 21 of the IBC excessively delegates legislative power to financial creditors by allowing them to come together as a CoC, who can obliterate the rights of other direct stakeholders in the corporate debtor, including operational creditors, and can skew the resolution process in their favour.
Rohatgi said that Section 29A leads to a compulsory sale of assets of the corporate debtor and “discriminates between persons of equal status while creating ineligibilities for some and eligibilities for others against such resolution applicants… It treats equals unequally and unequals equally.”
Singal having been blacklisted unconstitutionally is unable to even object/participate in the resolution process, Rohatgi said. Liquidating such an asset is against public interest, he added.
BPSL is being offered for takeover as per its discounted liquidation value of just Rs 9,700 crore for the steel plant having 30 lakh tonnes capacity instead of its “going concern” and “fair value” of Rs 25,000 crore, said the petition.
BPSL figured among the 12 large non-performing assets referred for insolvency proceedings by banks following a nudge from the Reserve Bank of India in June last year. The company owed lenders over Rs 47,000 crore as on March 31, 2017.