BPSL: JSW Steel rejects ED contentions in affidavit to NCLAT Industry

JSW Steel, the preferred bidder for Bhushan Power and Steel (BPSL), in a reply affidavit to the National Company Law Appellate Tribunal (NCLAT), has rejected the Enforcement Directorate (ED)’s two major contentions – it cannot seek immunity from attachment of BPSL assets by the enforcement agency and that JSW Steel is a related party. It has described these two contentions as “complete misconception” and “misplaced”.

The NCLAT will hear the matter on Tuesday.

JSW Steel’s Rs 19,700-crore resolution plan for BPSL was approved by the National Company Law Tribunal (NCLT) on September 5, 2019. The NCLT, while approving JSW Steel’s bid, did not grant JSW Steel protection from attachment of assets on account of acts of omission or commission of the previous directors under Prevention of Money Laundering Act (PMLA). JSW Steel had on September 13, 2019 filed an application with the NCLAT seeking protection of the insolvent firm’s assets after takeover.

While the matter was still being heard by the NCLAT, the ED in October had attached BPSL’s assets worth over Rs 4,000 crore in connection with a money-laundering probe against the company’s former promoters. Following this, the NCLAT issued notice to the ED. In the meantime, through an ordinance promulgated on December 28, 2019, the government notified Section 32A in the Insolvency and Bankruptcy Code (IBC) that seeks to ring-fence assets of the corporate debtor for any offence committed prior to the commencement of the Corporate Insolvency Resolution Process.

The ED, in a reply affidavit to the NCLAT, contended that preferred bidder JSW Steel could not seek to ring-fence BPSL and its assets since Section 32A of the IBC did not apply retrospectively. The section prohibits prosecution, in case the resolution plan results in change of the management to a person who was not a promoter or in the management or control of the corporate debtor or a related party of such a person, from the day the resolution plan is approved by the insolvency court.

“Therefore, the amendment in the form of Section 32A having come into force after the resolution plan was approved in this case, and the fact that Section 32A had not been given retrospective effect, would mean that the benefit of section 32A cannot be claimed by the successful resolution applicant in this case,” the ED said.

JSW Steel, in its reply affidavit, submitted that by promulgation of the IBC Ordinance 2019, the law related to protection to the corporate debtor and the liability for offences committed prior to the commencement of the CIRP upon approval of a resolution plan, stands settled by virtue of introduction of 32A in the IBC.

“It is submitted that the condition stipulated in Section 32A (1) (a) is merely a subset of Section 29A of the IBC which sets out the circumstances in which a person would be ineligible to be a resolution applicant and submit a resolution plan,” it said, adding that both the resolution professional (RP) and the committee of creditors (CoC) had earlier found that JSW was eligible to submit the resolution plan under Section 29A.

The ED also informed the NCLAT that during the course of investigation under the PMLA, it found that BPSL and JSW Steel were associated as shareholders holding 24.09% and 49% equity, respectively, in a joint venture, Rohne Coal Company (RCCPL), and therefore, a related party.

JSW Steel has countered that contention, saying it alone had applied for a coal block allocation. However, by a letter of intent (LoI) on April 9, 2017, the government through the Ministry of Coal proposed joint allocation of Rohne Coking Coal block among three companies that also include Jai Balaji Industries.

“At the behest of the Ministry of Coal, a JV agreement was executed on 05.03.2008. Vide the LoI, the proportionate share of coal reserve allotted to each allocattee specified thereunder, JSW Steel was entitled to 69.01% of coal reserve. Further as per JVA, the appellant was entitled to subscribe to 69.01% of the share capital of Rohne together with its affiliate company. While the block was under development, the Supreme Court vide its order dated 24.09.2014 cancelled the allocation, consequently, the allocation of RCCPL was also cancelled. while the operations of RCCPL have been inactive since the cancellation of the coal block, the JV has not been dissolved as on date, on account of a pending litigation.”

Stating that the matter was disclosed in the resolution plan, JSW Steel said, “It is submitted that the contention of the ED that the appellant is a related party of the corporate debtor as per Section 5(24) of the Code is based upon a complete misconception and misinterpretation of Section 32 (1) (a) and Section 5(24) of the Code.”

Source: Financial Express