ED opposes dropping ongoing investigation against Bhushan Power and Steel

The Enforcement Directorate (ED) has said it cannot drop the ongoing investigation against Bhushan Power and Steel (BPSL), which is set to be acquired by JSW Steel.

This is because the immunity provided by the new provision in the insolvency law is not applicable to the new promoter (JSW Steel).

The move could make JSW Steel liable for offences committed by the previous management.

In its affidavit to the appellate tribunal, the federal agency said that founders of JSW and BPSL are so-called related parties as they had a joint venture for a coal block. 

In its chargesheet in the BPCL case, filed last week, ED had mentioned JSW as a joint venture partner in a coal entity.

Although the existing law allowed the prosecution to be withdrawn in case a bankrupt company is taken over by a new management, it does not exempt related parties from prosecution, the ED said.

Further, the ED said the newly-inserted Section 32A of the Insolvency and Bankruptcy Code (IBC) is not applicable to the JSW-Bhushan deal. This was because the acquisition was approved last year before the amendment came into force.

The government had amended the IBC last month and inserted Section 32A. 

This mandates that once management or control of a debt-ridden company changes after completion of the Corporate Insolvency Resolution Process (CIRP), it would not be liable for any offences committed prior to the commencement of the insolvency resolution process.

JSW Steel, which emerged successful bidder for BPSL with its bid of Rs 19,700 crore, filed an appeal against the ED move before the National Company Law Appellate Tribunal (NCLAT).

Earlier, on October 14, the NCLAT directed the ED to release BPSL’s properties attached by the agency on JSW Steel’s plea, alleging siphoning off of funds by its erstwhile promoters (BSPL).

While the ED is of the opinion that it can attach the property of BPSL under the Prevention of Money Laundering Act, the ministry of corporate affairs has been maintaining that the ED cannot do so as proceedings under the IBC was on.

Last October, the NCLAT had asked both the organisations to settle the matter adding that there was no question of amendment of laws. To this, the ED had filed an affidavit before the NCLAT questioning its jurisdiction.