JSW Steel, looking to acquire bankrupt Bhushan Power and Steel Ltd (BPSL), might have a longish wait.
The National Company Law Appellate Tribunal (NCLAT) had directed the government's Enforcement Directorate (ED) to revoke the properties the latter had attached of Bhushan. The ED had done so on the reasoning that these were proceeds from criminal acts.
The ED is learnt to have told the tribunal and the Union ministry of corporate affairs (MCA) that doing so will first require amending the Prevention of Money Laundering Act (PMLA).
“The probe agency, under Section 41 of PMLA, cannot revoke any action taken under the said law, unless the Supreme Court intervenes," said a senior ED official in the know.
Section 41 says: "No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Director, an adjudicating authority or the appellate tribunal is empowered by or under this Act to determine, and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act."
Last month, the ED had provisionally attached assets worth Rs 4,025 crore, including land and machinery, of the BPSL’s plant in Orissa, in connection with a money laundering case involving alleged diversion of 'bank loans.
The probe agency says insolvency proceedings come under civil law and that cannot override criminal law proceedings. An official also cited a Delhi court order which says the anti-money laundering law prevails over Insolvency and Bankruptcy Code (IBC) proceedings.
The tribunal has put on hold the Rs 19,700-crore payout offer of JSW Steel for acquiring the debt-ridden firm. However, it has said the ED actions would undermine the IBC.
Legal experts say the insolvency code needs clarity on this, as there is no definite law that a company and its promoters which are being charged for a criminal offence would be given any such exemption if it is undergoing insolvency proceedings.
In this case, BPSL allegedly misused bank loans for dubious transactions, later routing the money to promoter group entities. The ED alleges company promoter Sanjay Singhal did not use the money for the purpose it was sanctioned.
Sources say the MCA is contemplating a law change in the wake of this development.
While the NCLAT has accepted JSW Steel's debt resolution plan, it has refused to give immunity from any criminal proceedings against the ex-promoters and directors of BPSL, if such proceedings lead to recovery of money siphoned off as alleged.
NCLAT, however questioned the ED’s jurisdiction to seize the property of a corporate debtor, particularly when an appeal is pending with regard to attachment. Representatives of MCA had also said the ED lacked the authority to attach assets under the insolvency process.