The National Company Law Appellate Tribunal (NCLAT) on Monday gave JSW Steel Ltd immunity from all criminal investigations after its takeover of Bhushan Power & Steel Ltd, whose assets were sought to be attached by the Enforcement Directorate (ED) over alleged bungling by former management.
A two-member NCLAT bench headed by Justice S J Mukhopadhaya also declared attachment of assets of insolvent Bhushan Power & Steel Ltd (BPSL) by the ED as "illegal and without jurisdiction".
Billionaire Sajjan Jindal-led JSW Steel had moved the appellate tribunal seeking to extinguish all present and future liabilities on account of criminal investigations against Bhushan Power & Steel, contending that an absence of any such protection would jeopardise the feasibility and viability of its resolution plan.
JSW Steel had made the highest bid of Rs 19,700 crore for the takeover of BPSL.
While the government had in December amended the insolvency law to ring-fence a corporate debtor, after its takeover in a bankruptcy auction, from criminal proceedings arising from offences committed by the previous management, the ED argued that immunity is not retrospective in nature and does not cover companies whose resolution plan was approved prior to the law.
The bench rejected ED's contention that recent amendments in the Insolvency & Bankruptcy Code (IBC) by the government by inserting section 32A would not apply to JSW retrospectively and said that the ordinance was clarificatory in nature and it was "ex facie evident" that it must be made "applicable retrospectively".
The government had in December amended the IBC and inserted Section 32A, which mandates that once management or control of a debt-ridden company changes after the 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.
The ED had contended that the new law came into force on December 28, 2019, and it had attached the property of BPSL on October 10, 2019, which was earlier.
"We hold that the assets of the corporate debtor (BSPL) of which JSW Steel Ltd is a 'Successful Resolution Applicant' is immune from attachment by the Directorate of Enforcement," said the NCLAT.
The government had unequivocally stated that after the completion of CIRP, there cannot be any threat of criminal proceedings against the Corporate Debtor, or attachment or confiscation of its assets by any investigating agency, after approval of the 'Resolution Plan', the NCLAT observed.
"Accordingly, it is clear that subsequent promulgation of the Ordinance is merely a clarification in this respect. Therefore, it is ex facie evident that the Ordinance being clarificatory in nature, must be made applicable retrospectively," said the NCLAT.
The NCLAT order came over a batch of petition filed against the order passed the Principal Bench of the National Company Law Tribunal (NCLT) on September 5, 2019 approving billionaire Sajjan Jindal-led JSW Steel for a Rs 19,700-crore takeover of BPSL.
However, the NCLT had not granted it certain reliefs to JSW related to proceedings against the erstwhile management of BPSL and it was challenged before the NCLAT. Besides, Sanjay Singha former promoter group and some creditors along with the state of Odisha had also approached the appellate tribunal.
Allowing, JSW's plea, the NCLAT vacated its stay over the acquisition of BPSL by JSW Steel and upheld the order passed by NCLT with modifications as suggested by it.
"The impugned Judgment dated September 5, 2019 passed by the NCLT approving the plan submitted by JSW Steel is approved with aforesaid modification/ clarification as made above. The order of stay of implementation of the plan stands vacated," said the NCLAT while allowing the appeal filed by JSW Steel.
Moreover, over the profits earned by BPSL during the insolvency (CIRP EBITDA), the NCLAT said that it should be given to JSW Steel.
"We hold that the distribution on the profit made during the 'Corporate Insolvency Resolution Process' should be made in terms of an addendum to the RFP," it added.
It also rejected ED submissions that JSW steel is a connected party with the erstwhile Promoter of BPSL as they are shareholders holding 24.09 and 49 per cent equity respectively in a Joint venture company namely Rohne Coal Company and hence
"The Directorate of Enforcement (ED) has not been empowered under IBC to decide the question," said the NCLAT adding that JSW Steel has already shared this information in its resolution plan.
"Even if the stand taken by the ED is accepted that JSW Steel is a related party of BPSL, the ED cannot decide whether JSW Steel is ineligible under Section 29A or Section 32A (1) (a) which can be determined by the Committee of Creditors'/ Adjudicating Authority," it added.
The NCLAT also rejected the plea by Sanjay Singhal, which has contended that JSW steel was barred from section 29A and is ineligible to file any resolution plan as it is an associate company, a JV partner and a related party of BPSL.
Rejecting it, the NCLAT said, "We find no merit in this appeal. The appeal preferred by Sanjay Singal is dismissed."
In its 103-page-long judgment, the NCLAT observed that section 238 of the IBC mandates that insolvency has an overriding effect over anything inconsistent there within any other law.
The NCLAT said the ED "failed to show that the Appellant (JSW Steel) does not meet the criteria under Section 32A (1) (b) of the I&B Code".
The tribunal also observed that other investigative agencies as the Central Bureau of Investigation and Serious Fraud Investigation Office has not alleged any act of money laundering or other acts against JSW Steel or its management.
Bhushan Steel and Power Ltd was dragged to insolvency by lenders led by PNB after the company failed to pay loans within the stipulated time-frame. It had 47,158 crore of admitted claims.
BPSL was in the first list of 12 companies by the RBI, against whom the banking regulator had directed banks to file insolvency in the NCLT. It was auctioned to recover Rs 47,158 overdue loans.