Will continue to probe Bhushan Power; IBC ordinance won’t shelter JSW: ED

Aashish Aryan
Bhushan power, Bhushan power vase, Bhushan power ED case, JSW steel, enforcement directorate, nclat, indian express

The Union Cabinet had in December last cleared an ordinance that would protect bidders for insolvent companies from any crimes committed by erstwhile or former promoters. (File)

In a fresh twist to the insolvency proceedings of Bhushan Power and Steel, the ED has decided to continue its investigation against the company and its former promoters, sources close to the development said.

The Enforcement Directorate (ED) is also of the view that the Insolvency and Bankruptcy Code (IBC) ordinance, which ring-fenced bidders of insolvent companies from prosecution against crimes of former promoters, will apply only prospectively and not retrospectively, thereby granting no protection to Bhushan Power as a company, the sources said.

In its affidavit to be filed with the National Company Law Appellate Tribunal (NCLAT), the ED is also likely to mention that as JSW Steel and Bhushan Power had jointly bought the Rohne coal block in Jharkhand, the probe in financial irregularities of the latter would also extend to JSW Steel, said one of the sources. The NCLAT is scheduled to hear the case on Thursday. The move by ED gains significance as the NCLAT had on January 13 asked the probe agency to clarify its stand on JSW Steel’s plea that it should not be probed for the financial irregularities allegedly committed by former promoters of the company.

During the last hearing, JSW Steel had also said that the Centre’s recent ordinance on IBC would cover it as well.

The Union Cabinet had in December last cleared an ordinance that would protect bidders for insolvent companies from any crimes committed by erstwhile or former promoters.

The ordinance was seen as a reaction to JSW Steel being wary of proceeding with the resolution plan of Bhushan Power. JSW Steel, which had at Rs 19,700 crore placed the winning bid for Bhushan Power, had been wary owing to cases pending against the latter.

This was after the ED had remained firm on its idea to attach the properties of Bhushan Power, as well as its former promoters and directors for alleged money laundering. The ED had in October started attaching properties worth nearly Rs 4,000 crore, belonging to Bhushan Power. Following the raids, JSW Steel approached the NCLAT.

The appellate tribunal, while halting the implementation of the resolution plan, asked ED to release the assets attached by it.

The NCLAT, last October, also noted that such actions by agencies like ED, and Central Bureau of Investigation (CBI) or Serious Fraud Investigation Office, would “fail” IBC. ”IBC cannot be annulled in this manner. Money laundering is by an individual not company,” the NCLAT bench had said.

Curiously, the Ministry of Corporate Affairs too had taken a similar stand in October and told the NCLAT that the ED had no rights to attach the properties of a corporate debtor undergoing corporate insolvency resolution process. It had then also said that doing so would hamper the insolvency process of such companies.

Apart from the probe in financial irregularities, Bhushan Power is also facing investigations from other probe agencies, including the CBI. The probe by CBI was started after at least two banks had in July last year reported frauds of Rs 3,800 crore, and Rs 1,774 crore, respectively.

Both the banks had in their respective reports to the Reserve Bank of India said that they had, while auditing the accounts of Bhushan Power, discovered that the company had misappropriated funds by manipulating their books of accounts to raise money from a consortium of banks.

The insolvency litigation for Bhushan Power, admitted into insolvency in 2017 for defaulting on debt repayment of more than Rs 47,000 crore, has been ongoing for more than 2 years now. UK-based Liberty House had in 2018 challenged the Committee of Creditors’ (CoC) decision to close bidding for the company without considering its bid. After the NCLAT ruling that CoC must consider all bids, the bid submitted by Liberty House was also considered along with ones submitted by JSW Steel and Tata Steel. The bidding war was finally won by JSW Steel, which twice revised its offer, from Rs 11,000 crore to Rs 18,000 crore and finally Rs 19,000 crore, which was accepted by CoC as the highest bid, and approved by the National Company Law Tribunal in September 2019.