When the Supreme Court takes up the Bhushan Power & Steel Ltd (BPSL) matter, it will to settle yet another sticky point in the insolvency law. While the Essar Steel judgment smoothened the cracks about eligibility and Section 29A, BPSL will tests the applicability of a new called Section 32A and which gives immunity to the corporate debtor.
The Enforcement Directorate (ED), which ordered attaching BPSL assets valued at Rs 4,025 crore in October last year, has objected to the applicability of Section 32A of the Insolvency and Bankruptcy Code (IBC) to the JSW-Bhushan deal.
The reasons are primarily two. JSW Steel’s resolution plan was approved by the National Company Law Tribunal (NCLT) in October 2019 prior to the introduction of Section 32A. JSW Steel and BPSL are associates in a joint venture company, Rohne Coal Company Private Ltd, and therefore the resolution applicant is disqualified from the purview of Section 32A, being related parties.
Sources said that the matter could come up for hearing towards the end of the week.
Section 32A provides that the corporate debtor (in this case BPSL) shall not be prosecuted for an offence committed prior to the commencement of the corporate insolvency resolution process (CIRP) once the resolution plan has been approved by the adjudicating authority.
The ED is considering filing a fresh appeal in the Supreme Court. As the case awaits hearing, lenders and bidders hope that the issue of applicability and the broader debate on overlapping clauses of the IBC and the Prevention of Money Laundering Act (PMLA), under which BPSL assets were attached, will be settled. The NCLAT had ordered ED to release BPSL property attached under PMLA.
Kumar Saurabh Singh, partner at Khaitan & Co legal firm, said though the law is generally applicable prospectively and Section 32A was inserted after the NCLT approval for the plan, it is likely to be applicable for existing cases. “Section 29A was applied to cases like Essar even though the CIRP had started when it was the clause was introduced,” said Singh.
Much like the applicability of Section 32A, the apex court will have to decide on the criminality and attachment of assets under the PMLA.
Through cases like Essar Steel, Electrosteel and Bhushan Steel – from the RBI’s first list of NPAs to be resolved under IBC – Section 29A was tested.
“There is larger clarity around 29A and less litigation around it,” Singh said. “From a bidder’s perspective, the most contentious issues in IBC have been eligibility which is what 29A essentially dealt with, apart from taxation and criminality. On eligibility and taxations, the debate has been settled by the apex court, now the piece that remains to be resolved is criminality and attachment of assets,” said Singh.
The broader point is a jurisdictional issue between PMLA and IBC. Both PMLA and IBC have overriding clauses.
The ED’s point is that wherever Parliament has dealt with a specific instance through an earlier law, a later general rule will not override the earlier law unless the Parliament specifically intends as such.
Vidisha Krishan, partner at M V Kini & Co, said, this is a turf war between a law in the civil domain which is the IBC and in the criminal domain, the PMLA.
The question is whether the asset has been created from proceeds of crime and if it has been so created then whether there can be resolution of such an asset, Krishnan said.
However, a lender having exposure in BPSL said that the money belongs to the company and banks. “It is the banks who have a charge on the asset. With the delay in resolution it is the banks who are losing money,” the lender added.
Lenders want immediate payment from JSW, but the company recently said that pending adjudication of appeals and CoC (committee of creditors) application before the Supreme Court, the plan was incapable of implementation, more so when the assets continued to be attached by ED.
As the insolvency law gets tested in the apex court on yet another aspect, the CIRP for BPSL, which was admitted to NCLT on July 26, 2017, would be nudging three years.