It has also stayed operations of the Bombay High Court order that held that Parijat Enterprises, an operational creditor (OC), will still be entitled for payment of its recovery claims.
The Supreme Court has stayed a recovery suit filed by an operational creditor against erstwhile Bhushan Steel, which was taken over by Tata Steel in May 2018. It has also stayed operations of the Bombay High Court order that held that Parijat Enterprises, an operational creditor (OC), will still be entitled for payment of its recovery claims.
Bhushan Steel was led to insolvency resolution by State Bank of India in July 2017 for owing Rs 44,000 crore to lenders and was acquired by Tata Steel in May 2018. BSL had an outstanding debt of around Rs 57,000 crore.
The stay order was passed by an SC Bench led by Justice Navin Sinha on an appeal filed by Tata Steel BSL (formerly Known as Bhushan Steel) challenging the HC’s last year’s order that dismissed its plea and allowed the recovery suit filed by Parijat Enterprises through its proprietor Varsha to continue before a Nagpur court.
Tata, in its appeal, said that after takeover of BSL, the recovery suit could no longer survive and the lower court and the HC had committed an error in rejecting its plea for dismissal of the recovery claim. “Such claim has been finally settled and extinguished under the resolution plan that was accepted and approved by NCLT and affirmed by NCLAT under IBC,” Tata said, adding that the HC erred in holding that the claims are liable to be decided by the trial court.
Tata’s senior counsel AM Singhvi argued that the IBC has overriding effect over other laws and once the corporate insolvency resolution process has been initiated all the proceedings including the recovery suit are not maintainable and liable to be dismissed.
Besides, the company said that it had earmarked Rs 1,200 crore for the OCs in its approved RP and the same was implemented within a year from the takeover by the new management.
Parijat had filed claim for recovery of around Rs 38.90 lakh against BSL for supply of magnetite powder to its Dhenkanal factory in Odisha. However, the payment was disputed by BSL on the ground that the quality of the material supplied was substandard and not satisfactory.
While the recovery suit was pending, BSL was acquired by Tata Steel. The Tata’s application for dismissal of the recovery suit before the trial court was rejected in October 2018 on the grounds that the IBC proceedings did not have the effect of extinguishing the right of an OC to continue its recovery suit against BSL.
Tata contended that the proprietary firm had participated in CIRP and had failed to challenge the approved RP, thus had no right to continue with its recovery suit.
However, Parijat opposed Tata’s plea, saying the RP itself provided for a specific identified fund for meeting the liability of OCs like it and that the suit must reach its logical end for crystallizing the exact amount payable by Tata to it.