JSW Steel's offer for Bhushan Power is around Rs 19,350 crore. But the issue is worrying bidders -- small and big -- of stressed steel assets under the IBC, and creditors, who are now splitting hair over the different clauses in the PMLA
and the insolvency law.
One of the top lenders expressed concern over the attachment of assets and said the judgments around the PMLA had caused uncertainty.
The bidder is looking to secure the bid amount and creditors are concerned about recovering their money, he said.
Suharsh Sinha, partner, AZB & Partners, said the Delhi High Court in the deputy director, Directorate of Enforcement Delhi versus Axis Bank case has held that both PMLA and IBC have non-obstante clauses but they don't operate in the same sphere and therefore, can coexist.
The order said that the objective of the PMLA being distinct from the purpose of the RDBA (earlier RDDBFI Act), the SARFAESI Act, and the Insolvency Code, the latter three legislation do not prevail over the former. The PMLA, by virtue of Section 71, has the overriding effect on other existing laws in the matter of dealing with "money laundering" and "proceeds of crime" relating thereto.
However, in the IBC, Section 238 is also a non-obstante clause, which stipulates that the provisions of the Code shall have an overriding effect on anything inconsistent therewith in any other law.
“The IBC is meant to be a whitewash and bidders have made offers based on it,” a bidder pointed out. But most bidders have experienced demands from different government authorities post-resolution. The biggest concern, however, has turned out to be the PMLA, he said.
According to Sinha, the PMLA should either be amended or the bidder should be allowed to revise the bid to the extent of the alleged "proceeds of crime". The amount can be put in an escrow account, he said.
Pointing to two separate judgments, Vidisha Krishan, partner, MV Kini & Co, however, said that the NCLAT order in Rotomac Global and the PMLA Appellate Authority judgment in PMT Machines (a subsidiary of Sterling Biotech) had made it clear that there was no overlap between the PMLA and the IBC.
In the case of PMT Machines, the appellate authority of the PMLA had upheld the prevalence of the IBC over the PMLA and ordered the release of some properties attached by the Enforcement Directorate.
The NCLAT in the Rotomac Global case said that neither law has an overriding effect on the other.
However, Krishan pointed out that according to the orders, banks will have to ensure that the security interest was created prior to the crime period. Herein lies the problem.
“Operationally, how would a creditor ensure its charge on the property was created before the crime period,” asked Krishan.
Bidders, too, are awaiting clarity. Rao explained that in some cases, change of control had already taken place but yet there were litigations. “It needs to be clarified either by the courts or the government if the assets of the corporate debtor can be attached. Otherwise, it's a huge risk if after paying a lot of money, asset possession is not assured.”
Several bidders have made representations to the Ministry of Corporate Affairs (MCA) on the issues around the PMLA, especially with regard to the attachment of property. The government has taken cognizance and is working on detailed guidelines to protect the bidders.