Of JSW Steel's Rs 19,700 crore offer, lenders will get Rs 19,350 crore or 41% of their exposure and the rest will go to the operational creditors.
The National Company Law Appellate Tribunal (NCLAT) on Monday rejected the Enforcement Directorate’s (ED) plea for right to attach the assets of Bhushan Power and Steel Ltd (BPSL). It allowed JSW Steel, the chosen bidder for the insolvent firm, to go ahead with its Rs 19,700 crore takeover proposal, with immunity against the consequences of offences committed by its former promoters.
This is the first instance of use of Section 32A added to the Insolvency and Bankruptcy Code (IBC) through an Ordinance on December 28, 2019. The NCLAT ruling, though prone to challenge in the Supreme Court, also bolsters the case that the new Section has retrospective validity; the BPSL insolvency process began way back in July 2017.
Section 32A provides that in cases where the resolution plan results in a change in the management or control of a corporate debtor, then in such cases, the corporate debtor will not be liable for any offences committed prior to the commencement of the insolvency resolution process. The liability of the corporate debtor will cease from the date the resolution plan is approved by the tribunal and the property of the corporate debtor will be immune from actions such as attachment, confiscation or liquidation.
The (NCLAT) order will enable independent resolution applicants to fearlessly bid for distressed assets, without the fear of the ED action, Prevention of Money Laundering Act (PMLA) proceedings etc,” said senior advocate Ramji Srinivasan.
Sources said the ED, which opposed granting of immunity to JSW Steel, might move the Supreme Court challenging the appellate tribunal’s order. In that event, the insolvency resolution of the second largest indebted firm under IBC, after Essar Steel, could be delayed further. BPSL was admitted for insolvency resolution on Punjab National Bank’s plea. BPSL owed over Rs 47,000 crore to a clutch of lenders as in January last year.
A two-member NCLAT bench, headed by Chairman Justice SJ Mukhopadhaya, however, said that prosecution against former promoters under the money laundering act by the ED could continue. However, it stressed that if ED plea for attachment of assets is allowed, then not a single investor would come forward to take over insolvent firms under the IBC. It also rejected the petitions filed by operational creditors, seeking higher claims. The bench said that the Ebitda (earnings before interest, tax, depreciation and amortisation) earned by BPSL during the CIRP period will be given to JSW Steel.
Of JSW Steel’s Rs 19,700 crore offer, lenders will get Rs 19,350 crore or 41% of their exposure and the rest will go to the operational creditors. BPSL’s 3.5 million tonnes per annum (mtpa) steel-making capacity will increase JSW Steel’s capacity to 21.6 mtpa, enabling it to become India’s largest steel company, outpacing Tata Steel. JSW Steel has already taken over another insolvent firm Monnet Ispat through the IBC route. Monnet has 1.1 mtpa steel-making capacity. While approving JSW Steel’s bid for BPSL on September 5, 2019, the National Company Law Tribunal (NCLT) did not grant it protection from attachment of the BPSL assets. JSW Steel, on September 13, moved NCLAT with the submission that no penal liability or attachment of assets of the corporate debtor (BPSL) should occur on account of proceedings by the Central Bureau of Investigation (CBI) or ED for actions taken by the corporate debtor under its previous management prior to take over by JSW Steel.
While the hearing on the matter was yet to be completed, the ED on October 10 attached BPSL’s assets worth over Rs 4,025 crore in connection with its money laundering probe linked to an alleged bank loan fraud by its former promoters. The NCLAT then directed the ED to immediately release the confiscated assets; but the ED challenged the order, saying the IBC can’t interfere with the provisional attachment order PMLA.
The ED also said that JSW Steel cannot seek to ring-fence BPSL and its assets post take-over since section 32A, notified on December 28, 2019, of the IBC does not apply retrospectively. The ED also argued that BPSL and JSW are related parties as they were associated as shareholders holding 24.09% and 49% equity respectively in a joint venture, Rohne Coal Company Ltd.
The ministry of corporate affairs (MCA), however, had a different view. It said once corporate insolvency resolution process (CIRP) is completed against an insolvent firm, there cannot be any attachment or confiscation of the assets of the corporate debtor by any enforcement agencies after approval of the resolution plan.
BPSL’s resolution has seen many twists and turns. It all started with the UK-based Liberty House’s late submission of bids. Eventually, the fight was between the Tatas and the Jindals; however, JSW Steel was chosen as the preferred bidder by the committee of creditors (CoC). Tatas took the matter to the NCLAT which dismissed its plea. Tatas had alleged that lenders gave JSW Steel undue chance to revise its bid even after declaring Tata Steel as the preferred bidder.