The Supreme Court has firmly shut doors on defaulting promoters who still want to keep a residual stake even after their company is sold off under the insolvency process. The ruling came in the case of Bhushan Steel where the promoters were holding onto 2.35 per cent stake even after Tata Steel acquired majority shares, amounting to 72.65 per cent stake, in the company, through the IBC process
On September 30, Justice MR Shah and Justice Krishna Murari dismissed erstwhile Bhushan Steel promoter Neeraj Singal’s appeal against Tata Steel for the transfer of the residual shares. The two-judge bench said there is no ground for review order passed by the NCLAT which dismissed the appeal.
Dhrupad Vaghani, Partner, LEx Aeterna Practices, said the judgment becomes a precedent and will put an end to unnecessary delay caused by erstwhile promoters in implementing the duly approved insolvency process. It will also give more confidence to new promoters who are taking over the stressed asset and help them turn around the asset by raising the required capital without the trouble caused by the previous promoters. In all, the judgment is another feather in IBC, Vaghani said.
Bhushan Steel owed ₹59,000 crore to the creditors and was dragged to the NCLT by SBI in 2017. The NCLT approved Tata Steel’s ₹35,000-crore resolution plan for the company in May 2018.
That same month, Bamnipal Steel, a Tata Steel subsidiary, issued a letter to the erstwhile promoters calling upon them to sell equity shares by them. In March this year, the NCLAT dismissed an appeal filed by the Singhals, challenging the October 2021 order of the NCLT that directed the promoter group to sell their 2.5 crore shares at ₹2 apiece to Tata Steel.
“According to us, the resolution plan shall not be workable at all. At this stage, it is also required to be noted that the appellants are the erstwhile promoters and therefore they cannot be continued to be in the company in any capacity may be as shareholders as rightly observed by the NCLAT,” the Supreme Court order stated.
Rajesh N Gupta, Managing Partner, SNG & Partners, said, the creditors and the outgoing promoters need to be mindful that the resolution plan is the key document that addresses the future liability as well as rights of the outgoing promoters on their shareholding in the company. There is a clear message to the insolvency professional and the committee of creditors also to the effect that the resolution plan must address conclusively such open issues to avoid any possible conflicts later.