Old legal cases haunt companies acquiring assets under IBC

Two years after it was acquired, the old serious fraud cases of Bhushan Steel Ltd (now Tata Steel BSL) and its subsidiary Angul Energy Ltd, continue to haunt Tata Steel, raising questions on the legal liabilities on new owners acquiring stressed assets under the ever-evolving Insolvency and Bankruptcy Code (IBC).

The Additional Sessions Judge has issued summons to Tata Steel BSL and Angul Energy Ltd (AEL) to appear before the Special Court in relation to a criminal complaint filed by the Serious Fraud Investigation Office (SFIO) against them.

The complaint and summons arose from the investigations initiated by the Ministry of Corporate Affairs (through the SFIO) into the affairs of Tata Steel BSL and AEL relating to issues which arose prior to the acquisition of these companies by Tata Steel through the Corporate Insolvency and Resolution Process (CIRP).

Meanwhile, Tata Steel BSL and AEL had filed writ petitions before the Delhi High Court challenging the summons issued by the special court and the order was set aside by the High Court.

TV Narendran, Managing Director, Tata Steel, said the company has enough bandwidth to deal with such notices and this does not hinder the efforts being made to turn around the stressed asset.

Large corporates that had acquired assets under IBC continue to face legal tussles on old cases being raked up by government departments including Income Tax Department, Ministry of Corporate Affairs and market regulator Securities and Exchange Board of India (SEBI).

Earlier this month, SEBI had imposed a penalty of ₹6 lakh on Monnet Ispat and Energy for disclosure lapses before it was acquired by JSW Steel along with Aion Investment under IBC for ₹2,500 crore in 2018.

The probe by SEBI found that the company, in its 2016 and 2017 quarterly financial statements failed to disclose to BSE the extent and nature of security created and maintained on its listed non-convertible debentures. In its submission to SEBI, the company said the disclosures were included in its annual reports.

Section 238 of IBC rules that it has over-riding powers on all other laws. However, a similar provision is there in the Prevention of Money Laundering Act too. There is a lot of confusion on the disconnect over which of these two laws prevails over the other.

In fact, banks loaded with non-performing assets (NPAs) are now forcing JSW Steel to acquire Bhushan Power and Steel for ₹19,700 crore even as the Enforcement Directorate had attached BPSL’s assets. Incidentally, the Supreme Court had accepted the petition filed by BPSL’s promoters without stopping the banks from selling the asset to JSW Steel.

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