Bid eligibility challenge: NCLAT clears the deck for Tata Steel and Vedanta

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New Delhi | Published: August 11, 2018 5:43:15 AM

Ends all uncertainty on the success of awards relating to Bhushan Steel, Electrosteel Steels

NCLAT, Tata Steel, Vedanta, Electrosteel Steels, Insolvency and Bankruptcy Code, UK act, Supreme CourtIn the same order, the bench also held that Tata Steel’s resolution plan was fair and equitable to all the creditors, including the operational creditors and, therefore, no interference was called for.

The National Company Law Appellate Tribunal (NCLAT) on Friday dismissed the petitions of former promoter and managing director of Bhushan Steel Neeraj Singal, who had challenged the eligibility of Tata Steel to bid for his bankrupt company, as well as that of Renaissance Steel, which had challenged the eligibility of Anil Agarwal’s Vedanta to bid for Electrosteel Steels.Though the National Company Law Tribunals had cleared the bid of Tata Steel for Bhushan Steel on May 15 and Vedanta’s for Electrosteel on April 17, both were challenged in the NCLAT, which while not staying the awards had said that the final outcome will depend on its decision on the petitions.

Subsequently, Tata Steel took over the management of Bhushan Steel and the same was done by Vedanta in the case of Electrosteel. Therefore, Friday’s dismissal of the petitions by the tribunal removes whatever little uncertainty that remained about the success of the awards relating to Bhushan Steel and Electrosteel by the NCLT. Renaissance lawyer Anup Kumar said that the company will appeal against the NCLAT order in the Supreme Court but there was no word from Singal, who was arrested by the Serious Fraud Investigation Office on Thursday for for allegedly siphoning off funds worth over Rs 2,000 crore.

Both petitions which were dismissed by the NCLAT had stated that the companies — Tata Steel and Vedanta — were ineligible to bid under Section 29 (A) of the Insolvency and Bankruptcy Code (IBC). Singal had contended that since Tata Steel UK, a “connected person” of Tata Steel, has been convicted under the Health and Safety at Work Act, 1974, for an offence punishable with imprisonment for two years or more, it attracted disqualification under Section 29 (A) of the IBC.

However, the two-member NCLAT bench, headed by its chairperson SJ Mukhopadhaya, said the UK Act and Section 29 (A) of the IBC cannot be equated as the UK Act prescribes “imprisonment for a term not exceeding 12 months or a fine or both” whereas Section 29 (A) stipulates “has been convicted for any offence punishable with imprisonment for two years or more”.

“The severity for the offence under Section 29A (d) is much more than the severity of offence punishable under Section 33(1) (a) of the ‘UK Act’… For the said reason, we hold that ‘Tata Steel UK’, which is the ‘connected person’ of ‘Tata Steel’, does not attract the disability under Section 29(A) of the IBC and for the said reason, we also hold that ‘Tata Steel’ is eligible to file the ‘Resolution Plan’,” it said.

Similarly, Renaissance Steel had alleged that Vedanta was a “related party” of Zambia-based Konkola Copper Mines, against which the local government brought a successful criminal prosecution on pollution charges. A local court convicted it for the offence with a fine.
This was also dismissed by the bench as it held that the punishment did not correspond to clause (d) of Section 29(A) as no “connected person” meaning individual or director of Vedanta Resources was convicted for the offence.

In the same order, the bench also held that Tata Steel’s resolution plan was fair and equitable to all the creditors, including the operational creditors and, therefore, no interference was called for. Larsen & Toubro had moved the NCLAT seeking to be declared a secured creditor so that it gets higher priority in repayment of dues.

The engineering and construction major had claimed that against dues of Rs 961 crore, the resolution professional has admitted only Rs 537 crore. However, Tata Steel’s resolution plan does not specifically mentions any amount that would accrue to L&T. Tata Steel has already deposited Rs 35,200 crore to the financial creditors of Bhushan Steel and offered to pay its operational creditors Rs 1,200 crore in 12 months. Similarly, Vedanta has paid Rs 5,320 crore upfront to the lenders of Electrosteel Steels.

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