India Court Halts $2.8 Billion Bhushan Power Sale to JSW Steel

(Bloomberg) -- An Indian court temporarily halted JSW Steel Ltd.’s $2.8 billion purchase of insolvent Bhushan Power & Steel Ltd., a move that hurts the South Asian nation’s effort to clean up the world’s worst bad-debt pile.

The National Company Law Appellate Tribunal ordered a freeze on payment by the Sajjan Jindal-led mill and took objection to the Enforcement Directorate, the federal anti-money laundering agency, taking over the assets of the bankrupt steel mill. The agency is investigating allegations of money laundering by former owners of Bhushan Power and Steel.

“No one will come to invest,” Justice S.J. Mukhopadhaya, who headed the bench, said in court while hearing the plea by JSW seeking immunity from future liabilities on Bhushan Power deal. The bankruptcy law will be “redundant,” the judge warned.

Time-bound resolutions under bankruptcy law are key to Prime Minister Narendra Modi’s effort to kick start Asia’s third-largest economy that’s expanding at the slowest pace in six years. Till March 31, under the new law, lenders have recovered the equivalent of about $11 billion, or about 43%, of the $25 billion in dues admitted by courts, according to a Crisil report.

The NCLAT also asked the investigating agency to release the 40.25 billion rupees ($567 million) of Bhushan’s assets that it seized this weekend and also barred it from attaching any more of the stressed mill’s facilities until the hearing in the case is concluded. The next date of hearing is on Oct. 25

The investigating agency had taken over the land, building and other assets of Bhushan Power in Odisha state under the Prevention of Money Laundering Act. JSW Steel had appealed to the company court seeking immunity against future litigation after Bhushan Power was named in alleged accounting frauds totaling about 56 billion rupees by state-run Allahabad Bank and Punjab National Bank.

The court will decide whether the probe agency has jurisdiction on Bhushan Power in further hearings of the case, and the tribunal can later order JSW to make the payment along with interest earned during this period.

JSW Steel’s spokesman sought more time to respond to the verdict. Shares of JSW Steel pared gains of as much as 3.6% to trade at 2.7.9% higher in Mumbai at 12:36 p.m. local time.

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