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Tata Steel has walked away with a profit of ₹5,000 crore made by Bhushan Steel during the insolvency period stretching over 18 months.
This contrasts with the National Company Law Tribunal (NCLT) ruling that the profit made by Bhushan Power and Steel during the insolvency period belongs to the financial and operational creditors.
JSW Steel moves NCLAT
JSW Steel, the winning bidder of Bhushan Power, has moved the National Company Law Appellate Tribunal (NCLAT) against the NCLT’s order. As of May 18, the current assets of Bhushan Steel were ₹7,909 crore, while its current liabilities were ₹2,742 crore. Therefore, the net current assets bagged by Tata Steel after the insolvency proceeding were ₹5,168 crore.
Bhushan Steel had inventories of ₹4,219 crore and trade receivables of ₹1,288 crore when Tata Steel officially took over the company. Tata Steel also inherited non-current assets, other than fixed assets of ₹2,028 crore and and non-current liabilities of ₹97 crore. In all, it got non-current assets of ₹1,931 crore.
Thus, Bhushan Steel has gained ₹7,099 crore ever since Tata Steel placed a bid of ₹35,000 crore to acquire the insolvent asset.
Considering that the Insolvency and Bankruptcy Code (IBC) was a time-bound resolution process, the Committee of Creditors (CoC) did not make a claim on profit during the insolvency period in the initial cases, said a lawyer familiar with the development.
Some of the other companies that benefited from the CoC’s omission include Vedanta and JSW Steel, which acquired Electrosteel Steels and Monnet Ispat. Unlike Bhushan Steel, the profit accrued in both the cases was negligible as most of the units in both cases were not operational.
The issue of profit in the case of Bhushan Power was raked up by during the court proceedings by its promoter, Sanjay Singhal, who said the initial process document for insolvency issued by the CoC cannot be changed at the fag end.
Once bitten twice shy
The CoC has made its claim on profit in the case of Essar Steel, whose insolvency proceeding was delayed as the company had moved various courts to scuttle insolvency, said the lawyer.
In the case of Essar Steel, which is being taken over by ArcelorMittal, the NCLT ruled that the ₹3,400-crore profit made by Essar Steel during the insolvency period should be distributed among the financial and operational creditors.
The sharp increase in demand, lower cost of production and moratorium on interest payment on defaulted loan have ensured that the insolvent company made a huge profit during the insolvency period, said an analyst.
Responding to a query by BusinessLine , a Tata Steel spokesperson said: “Tata Steel Ltd acquired a controlling stake in Tata Steel BSL Ltd for ₹35,232.58 crore. Accounting for the acquisition entailed adjustments as per the approved resolution plan and as per the requirements of the accounting standards. The assets and liabilities of the acquired business were recognised at fair value as on the acquisition date. The net current assets, as mentioned in the story, does not represent profit earned by Bhushan Steel during the insolvency period.”
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