IBC faces test again as top court hears Bhushan Power & Steel case

Much like the applicability of Section 32A, the apex court will have to decide on the criminality and attachment of assets under the PMLA.
The Supreme Court will have its task cut out in settling yet another contentious aspect of the Insolvency and Bankruptcy Code (IBC), once it starts hearing the Bhushan Power & Steel (BPSL) case.

 Although the Essar Steel judgment provided some clarity about eligibility and Section 29A, the BPSL case will test the applicability of the newly formulated Section 32A, which provides immunity to the corporate debtor.

 The Enforcement Directorate (ED), which had issued a provisional order of attachment of BPSL’s assets — valued at Rs 4,025 crore — in October 2019, has objected to the applicability of Section 32A of the insolvency law to the JSW-Bhushan deal. It has cited two reasons for the same.

First, JSW Steel’s resolution plan was approved by the National Company Law Tribunal (NCLT) in October 2019, prior to the introduction of Section 32A. Second, JSW Steel and BPSL are associates in the joint venture firm Rohne Coal Company, which disqualifies the resolution applicant from the purview of Section 32A, being a related party.

People in the know said the matter could come up for hearing towards the end of the week.

Section 32A states 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 looking to file a fresh appeal in the apex court. As the case awaits hearing, stakeholders — both lenders and bidders — hope the issue of applicability will be settled once and for all.

They also hope for closure to the issue of overlapping clauses between the IBC and the Prevention of Money Laundering Act (PMLA), under which the assets have been attached. The NCLAT had directed the ED to release BPSL’s assets attached under PMLA.

Kumar Saurabh Singh, partner at Khaitan & Co., pointed out that though the law was generally applicable prospectively and Section 32A was inserted after the NCLT’s nod for the plan, it could still be applicable for existing cases. “Section 29A was applied to cases like Essar, even though the corporate insolvency resolution process had started before the clause was introduced.”

Much like the applicability of Section 32A, the apex court has to decide on criminality, and attachment of assets under the PMLA.

Section 29A was tested in cases such as Essar Steel, Electrosteel, and Bhushan Steel — from the RBI’s first list of resolution under IBC.

“There is larger clarity around 29A and less litigation,” said Singh said.

“From a bidder’s perspective, the most contentious issues in the IBC have been eligibility, which is what 29A essentially deals with, besides taxation and criminality. On eligibility and taxation, the debate has been settled by the apex court. The piece that remains to be resolved is criminality and attachment of assets,” he added.

The broader point is the jurisdictional issue between the PMLA and IBC. The ED says that wherever the Parliament has dealt with a specific instance through an earlier law, any later general rule would not override the earlier law, unless the Parliament specifically intends as such.

Vidisha Krishan, partner at MV Kini & Co, said that this was a turf war between a law in the civil domain, which is the IBC, and in the criminal domain — the PMLA.
The fundamental question to be answered is whether the asset has been created from proceeds of the crime, and if so, then whether there could be resolution of such an asset, said Krishnan.

However, a lender with exposure to BPSL said the money belongs to the firm and banks. “It is the banks that have a charge on the asset. With the delay in resolution, the banks are the ones losing money,” the lender added.

Lenders want immediate payment from JSW, but the firm recently said that pending adjudication of appeals and the Committee of Creditors’ application before the apex court, the plan was incapable of implementation — more so when the assets continued to be attached by the ED.

With the insolvency law being the bone of contention, the CIRP for BPSL —admitted to the NCLT on July 26, 2017 — has been pending for three years.


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