Companies

Scam may delay JSW’s buy of Bhushan Power

Suresh P Iyengar Mumbai | Updated on July 08, 2019 Published on July 08, 2019

The recent ₹3,805-crore scam involving Bhushan Power and Steel unearthed by Punjab National Bank may complicate the acquisition of the company by JSW Steel.   -  REUTERS

Verdict on ‘tainted assets’ could make deal unattractive for JSW Steel

The recent ₹3,805-crore scam involving Bhushan Power and Steel unearthed by Punjab National Bank may complicate the acquisition of the company by JSW Steel.

JSW Steel had emerged the top bidder for the debt-laden company during the insolvency process. The key question is whether the new owner will be able to take control of the tainted assets.

While Insolvency and Bankruptcy Code says that criminal proceedings against the stressed asset should be dealt separately, the recent Delhi High Court ruling that the money laundering law — Prevention of Money Laundering Act — prevails over the Insolvency and Bankruptcy Code when it comes to attachment of properties obtained from proceeds of crime. The money recovered from ‘tainted asset’ should be credited to the government, it said.

The High Court passed the verdict on a batch of appeals by the Enforcement Directorate against the orders of PMLA appellate tribunal on the pleas of various banks.

In the Bhushan Power case, after the end of criminal investigation if it is found that the company has diverted the PNB loan availed to its subsidiaries then the subsidiaries would become ‘tainted assets’.

Any money recovered from the tainted asset has to be credited to the government and JSW Steel, in this case, cannot have any claim over the subsidiaries. However, JSW Steel, which had placed a value to these subsidiaries when it placed the bid for the stressed asset, would turn out to be a loser.

Babu Sivaprakasam, Partner, Economic Laws Practice, said assets accumulated from tainted money belongs to the government under PMLA and the winning bidder cannot stake his claim over it.

With the Delhi High Court recently upholding the supremacy of PMLA, clarification by the Supreme Court is required to put the inconsistencies between two Acts at rest for the smooth takeover of assets under IBC, he added.

Punjab National Bank on Saturday reported a borrowing fraud of ₹3,805 crore in Bhushan Power & Steel account to the Reserve Bank of India.

The fraud detected during a forensic audit involves alleged diversion of funds from the banking system and a first information report was filed with the police.

“It has been observed that the company has misappropriated bank funds, manipulated books of accounts to raise funds from consortium lender banks,” PNB had said.

The winning bid of ₹19,300 crore placed by JSW Steel for Bhushan Power was accepted by the CoC and the letter of intent was accepted the company in February. The resolution plan was placed before NCLT which reserved its judgment on April 23.

Twists and turns

Even as NCLT was considering JSW Steel bid approved by CoC, one of the directors of Bhushan Power and Steel Ravi Prakash Goyal moved the Punjab and Haryana High Court alleging that the copy of the resolution plan was not given to him.

The High Court directed CoC of Bhushan Power to give a copy of the resolution plan to him and provide fresh hearing before passing any judgment in the case. However, early this month the Supreme Court stayed the High Court order and directed the NCLT to pronounce its judgement

The prolonged delay in final verdict of the NCLT on the resolution plan approved by the CoC has been frustrating corporates which has to tie-up funds after receiving the letter of intent, said a senior lawyer.

Bhushan Power and Steel, which defaulted on ₹47,700 crore loan, was one of the top 12 defaulters referred for insolvency proceedings in 2017.

Published on July 08, 2019
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