Bhushan Power ex-MD Sanjay Singal challenges JSW resolution plan in SC

The former chairman and managing director of Bhushan Power & Steel, Sanjay Singal, has brought Section 29A of the Insolvency and Bankruptcy Code (IBC) under the spotlight once more in his latest petition filed with the Supreme Court, challenging JSW Steel's Rs 19,350 crore resolution plan approval by the National Company Law Appellate Tribunal (NCLAT).

Many high profile cases have tripped on deadlines on account of Section 29A, introduced by the government in November 2017 to keep defaulting promoters from bidding for their assets. In the case of Essar Steel, after protracted legal arguments, ArcelorMittal had to pay dues of defaulting firms - Uttam Galva and KSS Petron - to become an eligible bidder. The CIRP (corporate insolvency resolution process) of Essar was finally closed mid-December after more than two years. 

Bhushan Power & Steel was admitted to the National Company Law Tribunal (NCLT) even before Essar. But legal issues had dragged closure of the case. The latest twist is the Singal petition in the apex court.

Sources in the know expect it to be listed for next week. A JSW spokpeserson declined to comment.

Singal's petition reviewed by Business Standard raises several points. One of them being that JSW Steel is disqualified under Section 29A for being a related and connected party within the ambit of the IBC. Bhushan Power & Steel and JSW Steel were joint venture partners in Rohne Coal Company. According to the petition, IBC provides for an inclusive definition of an associate company and that includes a joint venture company.

According to the petition JSW Steel had submitted an affidavit along with the resolution plan that it had no relations with the corporate debtor and was therefore ineligible under Section 29A. 

The related and connected party issue had been raised by the Enforcement Directorate (ED) in its arguments before the NCLAT. The ED had attached properties of Bhushan Power & Steel during its investigations under the Prevention of Money Laundering Act (PMLA) which was challenged. The NCLAT in its order had held that Bhushan Power & Steel was immune from attachment by the ED.

However, the matter was already in the Supreme Court as a special leave petition had been filed in the Committee of Creditors vs the Directorate of Enforcement. Therefore, according to the petition, the NCLAT had erred in vacating the attachment. 

The attachment by ED in the Bhushan Power case had irked both financial creditors and bidders alike prompting the government to later introduced a new provision, Section 32A, that provided that no action would be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the CIRP.

Singal's petition however contended that the NCLAT had failed to appreciate that Section 32A inserted by the Ordinance did not confer any power upon it to remove the attachment made by the ED under PMLA.

Profits during CIRP

The petition says that JSW does not have any right, title or interest under EBITDA (earnings before interest, taxation, depreciation and amortisation) earned by the corporate debtor during CIRP. Lenders, members of committee of creditors (CoC) and operational creditors are entitled to benefits of EBITDA, it said.

Bhushan Power is believed to have registered EBITDA of around Rs 3,000 crore during the resolution process. The petition argues that if JSW is allowed to take away the EBITDA then it would tantamount to a discount to the bid amount and bring down the consideration to Rs 16,350 crore.

The NCLAT had said that EBITDA during CIRP should go to JSW.

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