In a setback for JSW Steel, a bankruptcy appeals tribunal has held back its payment of Rs 19,700 crore to buy Bhushan Power and Steel Ltd till conclusion of an investigation into allegations of fraud and money laundering by the former owners of the debt-laden steel maker.
The National Company Law Appellate Tribunal (NCLAT) also stayed the Enforcement Directorate (ED)’s move to attach assets of Bhushan Power.
In its order, the tribunal also slammed the ED saying that the bankruptcy law cannot be annulled in this manner as the money laundering is by an individual.
The insolvent steel maker is one of the dozen corporate defaulters struggling to complete the resolution process under the Insolvency and Bankruptcy Code (IBC) over two years.
On September 5, NCLAT had approved the sale of the stressed steel plant to steel baron Sajjan Jindal-owned JSW Steel for Rs 19,700 crore.
The appeals tribunal will now issue a final order on October 25.
The firm's major lenders include Punjab National Bank and Allahabad Bank. The lenders had alleged that almost 85% of their exposure to Bhushan Power had been siphoned off and that the company had misappropriated bank funds and manipulated account books.
Given the fraud detection, JSW Steel approached the National Company Law Tribunal (NCLT) after winning the bid for Bhushan Power, seeking protection from litigation against erstwhile promoters, the Singhal family. However, the court refused to grant these protections to JSW Steel at the time.
During the hearing on Monday, the ministry of corporate affairs (MCA) argued that the rights of secured financial creditors (banks) are to be protected through the resolution process.
“Once a resolution plan is approved, it is binding on all stakeholders, including government agencies," MCA said as per the NCLAT order.
Like the Essar Steel judgment pending with the Supreme Court, the NCLAT's ruling on Bhushan Power could have far-reaching implications on lenders and other stakeholders testing the swiftness of resolution process under the IBC.
The legal hurdles and delays under IBC have deterred many buyers including asset reconstruction companies (ARCs), distressed asset funds and strategic investors from buying debt-ridden assets.