FE: JSW Steel says can’t implement BPSL resolution plan

18 September 2019: JSW Steel, the highest bidder for Bhushan Power and Steel (BPSL), has informed the National Company Law Appellate Tribunal (NCLAT) that it would be impossible for it to implement the resolution plan for BPSL if it has to share profits earned by the insolvent firm during the resolution period with creditors. The Sajjan Jindal-led company has also expressed concerns over the chances of BPSL’s assets being undermined given it doesn’t have tribunal’ protection against possible attachment of assets for offence committed by the erstwhile promoters.

Challenging NCLT’s September 5 order that approved its `19,700-crore bid for the insolvent firm, JSW said: “The direction in relation to treatment of CIRP Ebitda amounts to modifying the resolution plan in a material manner, without the consent of the appellant (JSW Steel) and imposition of such a condition would make it impossible for the appellant to implement the resolution plan.”

In its order, NCLT had directed JSW Steel to distribute profits earned during the Corporate Insolvency Resolution Process (CIRP) period among financial and operational creditors on pro-rata basis. In the application, JSW Steel has said BPSL’s earnings before interest, tax, depreciation and amortisation (Ebitda) during the CIRP period was factored in as an asset of the company and based on that it had submitted the resolution plan. “In the present matter, the issue of entitlement of CIRP Ebitda was discussed between the appellant and the committee of creditors (CoC) and agreed that the CoC would not have a claim on it and CIRP Ebitda would continue to remain with the corporate debtor,” JSW Steel said.

Also did not gel well with JSW Steel the NCLT’s decision not to grant BPSL protection from penal financial liability and attachment of assets on account of acts of omission or commission of the previous directors under the Prevention of Money Laundering Act (PMLA), 2002. The CBI had on April 5 registered an FIR against the erstwhile directors and the debt-ridden firm for alleged siphoning of thousands of crores of funds borrowed from banks on behalf of BPSL.

Sans such protection, particularly in view of the Delhi High Court judgement that ruled that provisions of the Insolvency and Bankruptcy Code (IBC) do not override the provisions of the PMLA, the basis of the IBC was vitiated. The non-grant of such protection from penal liability and attachment under PMLA and other laws would also defeat the objects of the (IBC) code.

“It is respectfully submitted that in the absence of protection as prayed from attachment and liability resulting from criminal proceedings, the appellant would not be able to implement the resolution plan and the same would be an unviable and unfeasible plan incapable of even being approved under the code,” JSW Steel said.

The Financial Express reported

FE: JSW Steel moves NCLAT over Bhushan Power & Steel assets

14 September 2019: JSW Steel on Friday challenged an order of the National Company Law Tribunal (NCLT) that approved its Rs 19,700 crore bid for Bhushan Power and Steel (BPSL), but did not provide immunity from attaching the insolvent firm’s assets, post-take over, by investigating agencies for recovering Rs 5,580 crore fund digression by erstwhile promoters.

Mentioning JSW Steel’s plea under section 61 of the Insolvency and Bankruptcy Code (IBC) that allows any person aggrieved with the NCLT order to appeal before the NCLAT, senior counsel Kapil Sibal said, “So far as I (JSW Steel) am concerned, my asset is not proceeds of crime. The assets I acquire can’t be taken away.” The two-member NCLAT bench, headed by its chairperson justice S J Mukhopadhaya, has scheduled the matter for hearing on September 16.

In its application, JSW Steel urged, “No penal liability or attachment of assets of the corporate debtor (BPSL) should occur on account of proceedings by CBI or ED for actions taken by the corporate debtor under its previous management prior to take over by JSW Steel.” Based on forensic audit investigation findings, Punjab National Bank and Allahabad Bank had in July this year reported Rs 3,805 crore and Rs 1,775 crore frauds respectively to the Reserve Bank and made a total of Rs 2,800 crore provisions as per the prescribed prudential norms. Both the lenders found that BPSL has misappropriated bank funds, manipulated books of accounts to raise funds from consortium of lenders. CBI filed FIR, on suo muto basis, against BPSL and its directors.

The Sajjan Jindal-led firm, which is slated to become the largest steel company in the country post-acquisition, has also challenged in the NCLAT the conditions imposed by NCLT regarding distribution of profits earned by the company during the corporate insolvency resolution process (CIRP) that started with the admission of Punjab National Bank’s insolvency plea against BPSL on July 26, 2017.

NCLT, in its order, had directed the resolution professional “to redistribute the profits earned by running the corporate debtor (BPSL) during CIRP in accordance with the judgement of hon’ble NCLAT rendered in the case of Standard Chartered Bank Vs Satish Kumar Gupta, RP of Essar Steel Ltd & Ors.”

In the Essar Steel matter, the NCLAT had ordered that the profit earned by Essar Steel during the insolvency resolution period should be distributed amongst all financial and operational creditors on pro-rata basis of their claims subject to the fact that it should not exceed the admitted claim.

However, sources said BPSL did not generate any profit at all during the insolvency resolution period. All it earned was a positive EBITDA (earnings before interest, depreciation and amortisation) of about Rs 1,900 crore. They said after adjusting the EBITDA with depreciation, there will remain no profit and thus, NCLT’s direction on distribution of profits is “infructuous”.

However, JSW Steel did not seek indemnity from statutory dues from authorities under the Income Tax Act, ministry of corporate affairs, department of registration and stamps, Reserve Bank of India and others in its plea before the NCLAT. Rejecting its plea, the adjudicating authority had left the matter for competent authorities to decide.

The Financial Express reported

LM: JSW Steel, lenders to BPSL negotiate better deal terms

11 September 2019: Lenders to Bhushan Power and Steel Ltd (BPSL) have held talks with JSW Steel Ltd, which had won the stressed steel mill bid under the insolvency code, as the acquirer is not entirely happy with the takeover terms cleared by the bankruptcy court.

Banks are trying to improve the final terms for JSW Steel, which had made two key demands, but were not entertained by the Delhi bench of the National Company Law Tribunal (NCLT).

BPSL’s committee of creditors (CoC) met top company executives this week to arrive at the final terms of the takeover, two people aware of the development said, requesting anonymity.

On 5 September, Mint reported that JSW Steel, India’s second-largest private steelmaker, had sought concessions, including protection from the consequences of a fraud investigation into BPSL and discharging statutory liabilities.

JSW can challenge the NCLT decision in higher courts, but that would delay the resolution process further. A member of the CoC, one of the two cited above, said that banks were keen to receive the upfront payment of ₹19,700 crore within 30 days of the NCLT order.

“We’re holding meetings with the company to see what can be worked out,” he said. “JSW primarily wants its assets protected from the CBI investigation, and that is something the CoC cannot offer. But we want the resolution process to close at the earliest.”

JSW Steel has offered ₹19,700 crore in upfront cash to BPSL’s lenders and has agreed to infuse ₹350 crore in the steelmaker to revive it. While the offer was accepted by the NCLT, Sajjan Jindal-led JSW Steel also wanted protection from litigation after the change in control.

JSW had sought protection after a forensic audit revealed potential fraud and diversion of money by its erstwhile promoters. The allegations are being investigated by the Central Bureau of Investigation.

The NCLT also ruled that the operating profits that BPSL earned during its two-year-long resolution period be distributed among the company’s financial and operational creditors. JSW believes, instead, that these profits were part of the company’s assets and should stay with BPSL.

Financial creditors of BPSL, led by the State Bank of India, Punjab National Bank and Bank of India, prefer to finalize the terms that are agreeable to all parties rather than run the risk of more litigation, the second person said.

When contacted, a JSW Steel official said: “We are going through the judgment and, as per our legal input, we will take a call after reviewing the order.”

BPSL operates a 3.5 million tonne (mt) steel plant in Odisha. Under its earlier promoter, Sanjay Singal, the company had accumulated debt of over ₹47,000 crore, including a principal amount of ₹42,100 crore. BPSL was among the Reserve Bank of India’s first list of 12 non-performing accounts referred to the bankruptcy courts under the Insolvency and Bankruptcy Code (IBC) in June 2017. The resolution process has taken over 800 days. On 5 April, the CBI had pegged the BPSL fraud at ₹2,348 crore. After the details of the CBI investigation emerged, PNB informed stock exchanges that the bank’s loans had been misappropriated and the company’s books of accounts manipulated.

The LiveMint reported

FE: JSW Steel’s Rs 19,700 crore bid for Bhushan Power & Steel gets NCLT nod

6 September 2019: Sajjan Jindal-promoted JSW Steel has finally won Bhushan Power and Steel (BPSL) with its Rs 19,700-crore bid having been accepted by the National Company Law Tribunal (NCLT). At this price, bankers will be taking a near 60% haircut. The appellate tribunal on Thursday okayed the bid which would see financial creditors get Rs 19,350 crore while operational creditors will get `350 crore against their admitted claims of Rs 733.76 crore, a recovery of nearly 48%.

The acquisition of BPSL will make JSW Steel India’s biggest steelmaker with a capacity of over 22 million tonne.

BPSL has a capacity of 3.1 million tonne per annum (mtpa). JSW Steel has already taken over another insolvent firm — Monnet Ispat — through the Insolvency and Bankruptcy Code (IBC) route; Monnet has a steel-making capacity of 1.1 mtpa.

“The resolution plan of JSW, H1 resolution applicant, is accepted,” the two-member NCLT bench, headed by its president MM Kumar, said in its 138-page order. The bench also overruled objections raised by erstwhile promoters of the company as well as its operational creditors, both of which were against JSW Steel’s resolution plan.

The NCLT’s principal bench had on July 26, 2017, admitted the insolvency plea of Punjab National Bank against the company. A clutch of 34 financial creditors claimed `47,303 crore from the company, as on January 3, 2019, of which, the resolution professional (RP) admitted claims worth Rs 47,158 crore. Operational creditors, numbering 1,778, claimed `2,320 crore from BPSL.

“JSW is to incorporate or identify a wholly-owned subsidiary and to infuse equity of `8,550 crore into a special purpose vehicle (SPV), which is to be done in accordance with the provisions of the resolution plan and is to merge with the corporate debtor on the effective date,” JSW Steel’s council had informed the NCLT earlier.

The CIRP for BPSL has seen many twists and turns. Though late-entrant Liberty House was in the reckoning for BPSL, the race was primarily one between JSW Steel and Tata Steel. Lenders had on July 9, 2018 selected Tata Steel as the H1 bidder and JSW Steel as the H2 bidder for BPSL.

However, on July 26, 2018 the CoC allowed JSW Steel to submit a revised bid for the steelmaker. Tata Steel challenged the CoC’s decision in NCLAT on July 30, 2018. On August 1, 2018 NCLAT had again allowed submission of revised bids by all three bidders, including the UK-based Liberty House. Following this, on August 13, 2018 JSW Steel further improved its financial bid and chosen as the most preferred bidder, ahead of Tata Steel, for BPSL by the CoC on July 14.

While the Tatas had consistently opposed CoC’s permission for a revised bid, JSW Steel had questioned its objections, saying a financial bid can always be improved upon till the time the bids are voted on. The erstwhile promoters also made a last-minute offer of repaying back financial creditors in full. Sanjay Singal had offered to pay the financial creditors in full and take the company out the CIRP, under section 12 A of the IBC, by converting their entire debt into cumulative redeemable preference shares, payable over 17 years.

The Financial Express reported

BS: Govt likely to oppose NCLAT’s Essar Steel order in Supreme Court

17 July 2019: The Ministry of Corporate Affairs (MCA) is likely to implead in the Supreme Court (SC) against the recent National Company Law Appellate Tribunal (NCLAT) judgment in the Essar Steel case treating secured lenders and operational creditors on a par, said a senior government official.

The order, the government said, is not in line with the Insolvency and Bankruptcy Code (IBC). “We will clarify the intent of the law in the apex court. The latest order is deviating from the Code,” said a senior official.

Lenders to Essar Steel have appealed against the NCLAT order in the SC, which will be heard next week. 

The Cabinet on Wednesday approved amendments to the IBC to give preference to secured lenders over operational creditors effective retrospectively.

The MCA wants to make it ‘abundantly clear’ in the law, the limit to the protection available to unsecured and operational creditors, a senior government official said, adding, “All options are open in front of the government.”

Operational creditors — supplier of goods and services such as vendors — are kept at a different footing from secured lenders who bring in finances into the company and have greater risk exposure.

Experts feel that the proposed retrospective amendment will have far-reaching impact. “It will directly affect even such plans which have long ago attained judicial finality, on merely there being an appeal pending against such finality. This may result in opening the floodgates to fresh challenges and would be interesting to see how the courts react to the same,” said Diwakar Maheshwari, dispute resolution partner, Khaitan & Co.

According to people in the know, operational creditors in nearly 200 cases have approached the NCLAT to seek a stay on the resolution plan in the hope that they would get a better deal after the Essar Steel case.

In the case of Bhushan Power & Steel, some of the operational creditors, too, had moved against the resolution plan filed by JSW Steel in the National Company Law Tribunal in March this year. JSW had offered to pay operational creditors a sum of ~350 crore against their admitted claims of ~733 crore.

The latest proposed amendment, however, could put a lid on these cases. “The proposed clarification that how much dissenting financial creditors and operational creditors will get after comparing under the resolution plan and in liquidation will definitely reduce the litigation which were initiated because of issues in respect of distribution of value between the stakeholders,” said Ashish Pyasi, principal associate, Dhir & Dhir Associates.

The Business Standard reported

ET: JSW Steel seeks immunity from litigation against Bhushan Power

17 July 2019: JSW Steel has sought immunity from future litigations against Bhushan Power & Steel for any illegal activity under the previous management amid reports of alleged bank fraud by former promoters of the troubled company undergoing debt resolution process.

JSW Steel, whose resolution plan under the Insolvency and Bankruptcy Code has been approved by lenders of Bhushan Power & Steel (BPSL), has approached the National Company Law Tribunal for relief in the wake of a series of fraud cases reported by banks including Punjab National Bank and Allahabad Bank against BPSL.

“We have represented to NCLT after PNB and other cases,” a top JSW official told ET on Tuesday. “We have sought relief so that we are not impacted by any litigation. We are waiting for the court order.”

JSW Steel has also asked for a copy of the forensic audit report on BPSL following these cases. PNB had recently reported a Rs 3,800-crore fraud by BPSL by way of misappropriating bank funds and manipulating its books. Allahabad Bank last week reported a Rs 1,774-crore fraud.

The JSW official, speaking on condition of anonymity, however, refuted speculation that the company would cut back its Rs 19,300-crore bid for BPSL due to the fraud cases. “We are not looking at reducing our bid, nor are we exploring the option to withdraw it,” the person said. “We have been pursuing BPSL under the IBC right form the time the resolution process was initiated and we continue to be interested in acquiring the company.”

BPSL was the sixth highest debtor in the Reserve Bank of India’s first list of twelve large defaulters. JSW Steel outbid Tata Steel in the race for the asset which was admitted to NCLT in June 2017. Sanjeev Gupta’s Liberty House, too, was in the race.

BPSL owes more than Rs 47,100 crore to a consortium of 34 lenders led by State Bank of India. While opinion is divided over whether NCLT can provide relief as sought by JSW Steel, the official said the company’s appeal draws strength from Section 238 of the Insolvency and Bankruptcy Code that says IBC overrides all other laws.

According to Ashish K Singh, founder of law firm Capstone Legal, the anxiety of JSW comes from the fact that assets of BPSL may be considered “proceeds of a crime” under the Prevention of Money Laundering Act and other enactments.

The Economic Times reported

BS: Still want Bhushan Power, but reports of fraud a worry, JSW tells NCLT

15 July 2019: JSW Steel on Monday told the National Company Law Tribunal that the company is not backing out from the ongoing resolution process of Bhushan Power & Steel despite reports of alleged fraud by its former promoters.

During the proceedings in NCLT, counsel appearing for JSW Steel informed the tribunal that it was anxious about the alleged fraud reports and needs to know what is going inside Bhushan Power & Steel Ltd (BPSL).

A two member NCLT bench headed by the President Justice M M Kumar asked the Resolution Professional (RP) of BPSL to hand over a copy of the forensic report to JSW Steel.

NCLT said that alleged fraud reports will not have any impact on the insolvency resolution process and JSW’s resolution plan for BPSL.

NCLT has to take a decision over the lenders’ approval of the resolution plan of JSW Steel for BPSL.

Earlier on February 4, the National Company Law Appellate Tribunal (NCLAT) had dismissed the plea of Tata Steel and upheld the Committee of Creditors (CoC) decision to approve JSW Steel’s bid.

The NCLAT had said the CoC decision was well within its rights to negotiate better terms with resolution applicants and has had asked NCLT to decide over JSW Steel’s bid by March 31, 2019.

However, the judgement is still pending before the Principal bench of NCLT.

JSW Steel had revised its offer from Rs 11,000 crore to Rs 18,000 crore and later to over Rs 19,000 crore, whereas Tata Steel’s last offer was at Rs 17,000 crore after it had refused to revise its bid.

Last week, state-owned lender Allahabad Bank had reported fraud of over Rs 1,774 crore by BPSL to the Reserve Bank of India.

Earlier, PNB reported a fraud worth Rs 3,805.15 crore by BPSL by misappropriating bank funds and manipulating its books of accounts.

Around 85 per cent of PNB’s Rs 4,399 crore exposure to the company had been siphoned off.

Investigate agency CBI has already registered complaint in April names several other lenders.

According to the CBI, BPSL diverted around Rs 2,348 crore through its directors and staff from the loan accounts of PNB, Oriental Bank of Commerce, IDBI Bank and UCO Bank into the accounts of more than 200 shell companies without any obvious purpose.

The Business Standard reported

RT: Allahabad Bank reports $259 million alleged fraud by Bhushan Power & Steel

13 July 2019: The Allahabad Bank on Saturday became the second Indian state-owned bank to report a major alleged fraud by bankrupt steelmaker Bhushan Power & Steel Ltd this month, adding to concerns about a banking industry burdened with bad debts.

Allahabad Bank said in a statement that it had told the Reserve Bank of India (RBI) that it had identified a fraud worth $259 million in Bhushan’s accounts.

On July 6, state-run Punjab National Bank (PNB) said it had reported an alleged fraud of $554.6 million in the steelmaker’s accounts.

“It has been observed that the company has misappropriated bank funds, manipulated books of accounts to raise funds from consortium lender banks,” Allahabad Bank said in its statement, adding that it had made provisions of about $131 million against the bank’s exposure.

Bhushan Power & Steel, one of India’s most indebted companies, was among the first 12 companies referred by the RBI to a bankruptcy court for a debt resolution process under India’s new insolvency law.

Prime Minister Narendra Modi’s government introduced new bankruptcy resolution rules in 2016 to help with faster resolution of bad loans, but litigation has tied down some big restructuring deals.

To revive the banking sector the Indian government has injected about $36 billion of taxpayers’ money into the banks in the past five years and initiated an asset quality review by the central bank.

Only about 5% of the stressed assets of banks have so far been dealt with through the bankruptcy process.

Bhushan Power & Steel could not be immediately reached for comment on the latest allegation.

Reuter’s reported

LM: More banks likely to have been singed by Bhushan Power fraud

8 July 2019: More lenders to bankrupt Bhushan Power and Steel Ltd may say that the company misappropriated funds given to it after state-run Punjab National Bank first reported a ₹3,800 crore fraud, a top bank official said, requesting anonymity.

On Saturday, Punjab National Bank (PNB) disclosed to stock exchanges that it had detected that 85% of its exposure to bankrupt steel mill had been siphoned off and that Bhushan Power had misappropriated bank funds and manipulated account books.

“The forensic audit was initiated by SBI (State Bank of India) and they discussed it with other lenders,” Sunil Mehta, managing director and chief executive of PNB, said in an interview on Monday.

So far, apart from PNB, no other lender to Bhushan Power has reported a fraud related to the company. While PNB’s total exposure is at ₹4,399 crore, more than 85% of it has been classified as fraud, as admitted by the bank in the regulatory filing.

A complaint registered on 5 April by the Central Bureau of Investigation (CBI) pegged the fraud at Bhushan Power at ₹2,348 crore; PNB has now disclosed that the fraud is bigger at ₹3,805.15 crore.

“One year ago, the government had given us all a direction that all non-performing accounts (NPAs) beyond ₹50 crore should go through a forensic audit and be declared as a fraud wherever necessary. (Bhushan Power) is an old NPA and is at an advanced stage of resolution. SBI has the largest share here. We decided to disclose it to the stock exchanges as a matter of extra precaution and also because our exposure is substantial,” said Mehta.

The CBI first information report (FIR) on Bhushan Power could have nudged the forensic audit to reach its conclusion, said a banker who is part of the loan consortium.

Although forensic audits are commissioned in all accounts once they are referred to the National Company Law Tribunal (NCLT), these are inconclusive in most cases, the banker said on condition of anonymity.

Other lenders of the consortium may also be affected because 33 lenders have exposure to Bhushan Power.

“Once an account is reported to be fraudulent to the Reserve Bank of India (RBI), the bank has to fully provide for it and set aside money equal to the outstanding loan to the borrower,” explained the banker.

Bhushan Power is one of the 12 large loan accounts that lenders referred to NCLT following a nudge from RBI.

Meanwhile, JSW Steel, the highest bidder for bankrupt Bhushan Power, will stick to its final bid of ₹19,700 crore for the company in the wake of recent fraud allegations at the company. “JSW Steel might decide to alter its bid in the future, if more information is revealed about the nature of the fraud,” the first person cited earlier said. “At this moment, the company has not made a decision about this. But if there are chances of additional liabilities being imposed on the bidder in future, then JSW might choose not to go ahead with the acquisition.”

JSW Steel made the highest bid for Bhushan Power, with an upfront cash payment of ₹19,350 crore to the lenders and an equity infusion of ₹350 crore to revive the steel mill’s operations. Bhushan Power owed ₹47,204 crore to its lenders as of 30 January 2018. The bid is awaiting NCLT approval. Last week, the Supreme Court stayed an order by the Punjab and Haryana high court and urged NCLT to complete the resolution process.

“Allegations of fraud in some accounts under IBC (Insolvency and Bankruptcy Code) is not new,” said Babu Sivaprakasam, partner at Economic Laws Practice. Also, recent transactions of such nature will be revealed during insolvency process through forensic audit. Simultaneous criminal proceedings will not affect the resolution under the IBC process in general. This legal position is upheld by NCLAT (National Company Law Appellate Tribunal) and by the Bombay high court as well.”

“I believe what the bidders will look for is that they are getting clean, unencumbered property, which won’t be subject to investigation or claims later, like under the Prevention of Money Laundering Act (PMLA),” Sivaprakasam said. “They will want to be sure that the assets are not tainted and the title and ownership will not be challenged at a future date, especially post the recent judgement of the Delhi high court on the overriding effect of PMLA over IBC.”

An email sent to Bhushan Power’s resolution professional Mahender Kumar Khandelwal did not elicit a response till press time. JSW Steel declined to comment.

Under RBI guidelines, bank frauds should be reported to the central bank within three weeks from the date of detection. The provisions can be spread over a period not exceeding four quarters from the quarter in which the fraud has been detected. However, if there is a delay in reporting it, the entire provisioning is required to be made at once.

The CBI FIR named chairman Sanjay Singhal; vice-chairman Aarti Singhal, along with directors of Bhushan Power, as suspects in the case. The FIR said Bhushan Power, through its directors and staff, availed of various credit facilities from 33 different banks and financial institutions between 2007 and 2014 and the outstanding default as on 30 January 2018 was ₹47,204 crore.

“The amount of ₹2,348 crore was dishonestly and fraudulently diverted by Bhushan Power through its directors and staff from five cash credit accounts to more than 200 companies,” it said.

The LiveMint reported

LM: PNB reports over ₹3800 crore fraud by Bhushan Power & Steel

6 July 2019: Punjab National Bank on Saturday said it has detected a fraud of ₹3,805.15 crore by Bhushan Power & Steel Ltd and has reported it to the Reserve Bank of India.

The exposure of ₹3,800 crore includes domestic exposure of ₹3,191 crore, overseas exposure of $49.71 million at the bank’s Dubai branch and $38.51 million at its Hong Kong branch.

PNB said the company misappropriated bank funds and manipulated books to raise funds from consortium lenders.

“On the basis of Forensic Audit Investigation findings and the CBI filing an FIR on a suo moto basis, against the company and its directors, alleging diversion of funds from the banking system, a fraud of ₹3,805.15 core is being reported by the bank to the RBI,” the bank said.

The state-owned bank also said that it has made provision of ₹1,932.47 crore against this account.

BPSL is one of the 12 accounts identified by the RBI for insolvency proceedings. JSW Steel has offered to pay ₹19,350 crore to financial creditors, which implies a haircut of around 60% for lenders.

The state-owned bank reported the fraud at a time when it is already recovering from the Nirav Modi scam, where it was defrauded of ₹11,400 crore.

The LiveMint reported