The appellate tribunal granted JSW Steel Ltd. immunity from all past criminal liability involving Bhushan Power & Steel Ltd.’s previous management, paving the way for the takeover of the insolvent steelmaker.
That judgment of the National Company Law Appellate Tribunal settled three key issues: a successful bidder under the Insolvency and Bankruptcy Code need not give a declaration to qualify for such a immunity, the provision in law that provides for such a protection works retrospectively, and a joint venture doesn’t make an entity a related party.
The resolution plan approved in September was stuck after the Enforcement Directorate objected to JSW Steel’s plea seeking immunity from the investigation into the affairs of Bhushan Power & Steel for alleged violations of the Prevention of Money Laundering Act. The agency sought to attach assets for offences allegedly committed under Bhushan Power’s erstwhile promoters.
JSW Steel, however, argued that once the control of the company comes under its management, the agency can’t attach the assets.
The NCLAT agreed with JSW Steel’s argument and held that it has complete immunity from cases when the insolvent steelmaker was under control of the erstwhile promoters.
Here’s what NCLAT ruled:
Declaration Of Immunity Not Mandatory
The Enforcement Directorate argued that for immunity under Section 32 of the insolvency code, the successful bidder must make a declaration that it qualifies for the immunity. The agency asked for the NCLAT to order such declaration from JSW Steel.
The appellate tribunal, however, said Section 32A does not require any such declaration and declined to pass any direction to JSW Steel or decline the immunity on this ground.
Section 32A Retrospective
The Enforcement Directorate argued that Section 32A that grants immunity for past liability is not retrospective. The resolution plan by JSW Steel was approved in September whereas Section 32A came into effect on Dec. 28.
The appellate tribunal said two departments of the central government, including the Ministry of Corporate Affairs, agreed that JSW Steel will qualify for immunity and the probe agency is not eligible to attach assets of Bhushan Power & Steel.
The NCLAT said the ordinance inserting Section 32A was passed after the NCLAT asked the central government to deliberate on the stance taken by the Enforcement Directorate in this case.
“The ordinance having issued pursuant to direction of this appellate tribunal to the central government which on deliberation resulted into issuance of ordinance, we hold that Section 32A will be applicable to the present case- ‘JSW Steel Limited,’” said the NCLAT judgement.
Once the resolution plan is approved, all criminal cases against the company stand abated and the language of Section 32A in no way suggests that it will grant protection to only those resolution plans which are yet to be approved, the NCLAT said.
Joint Venture Doesn’t Mean Related Parties
The investigating agency argued that JSW Steel was a related party to Bhushan Power & Steel as the two companies are associate shareholders in Rohne Coal Company Pvt. Ltd., a company incorporated in 2008 and still in operation.
Therefore, the agency said, JSW Steel’s liability in the money-laundering cases against Bhushan Power & Steel won’t end.
“It is ex facie evident” that JSW Steel is “not an associate company/related party of” Bhushan Power & Steel, the NCLAT judgment said. Rohne Coal is an “associate company” of the corporate debtor as well as JSW Steel “but by virtue of both having investment in such downstream joint venture company”, Bhushan Power & Steel and JSW Steel “do not become related parties of each other”, NCLAT said.
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