Tata Steel Moves Supreme Court In Bhushan Steel Case For Debt Recovery

Tata Steel has submitted that any recovery made from the avoidance application should come to it and not the creditors.

(Source: Reuters)

Tata Steel BSL Ltd., which acquired Bhushan Steel in 2018, has moved the Supreme Court to challenge a Delhi High Court judgement pertaining to avoidance applications.

An avoidance application is filed for reversing mala fide transactions, which are entered into with related parties with the intent to devalue the assets of the company when it is on the verge of insolvency. These transactions affect the financial position of the company, thereby causing losses to the creditors.

The high court had held that the amount that is recovered after hearing the avoidance application can be distributed among the creditors of the erstwhile company and not the successful resolution applicant, which is Tata Steel in this case.

Although Tata Steel is not against the ruling, the point that has been urged before the top court is that in the present case, the creditors had assigned all of their outstanding debt to Tata Steel. Therefore, whatever recovery is made from the avoidance transactions should be made available to it and not the creditors, according to a lawyer involved in the matter who spoke with BQ Prime on the condition of anonymity.

The case was heard by the apex court on July 7 and is now likely to come up for hearing after four weeks.

Also Read: Tata Steel Confirms It Is The Highest Bidder For Bhushan Steel

Bhushan Steel was admitted into insolvency in 2017, and subsequently, Tata Steel’s resolution plan was accepted by the Committee of Creditors in 2018. However, before the plan was approved by the National Company Law Tribunal, a forensic audit report revealed a host of suspect transactions.

This prompted the resolution professional to file an avoidance application before the tribunal.

In the meantime, the tribunal had approved the resolution plan before a hearing on the avoidance application could take place. But the NCLT still issued a notice for a hearing of the avoidance application, even after the resolution plan was approved.

Aggrieved by the tribunal’s decision to grant a hearing for the avoidance application, after the conclusion of the resolution process, a case was filed in the Delhi High Court.

A division bench of the high court overturned a decision of the single judge and ruled that avoidance applications and the corporate insolvency resolution process are separate sets of proceedings. The court had said that the avoidance of a transaction requires the discovery of dubious transactions, which are complex in nature and time-consuming. Therefore, it can continue even after the completion of the resolution process.

The court had also remarked that the amount available after the avoidance application is decided upon can be made available to the secured creditors, who are primarily financial institutions and have taken a haircut in agreeing to accept a lesser amount than what was due and payable to them.

Also Read: Bhushan Steel’s Former Promoter Calls Insolvency Process Opaque 

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WRITTEN BY
Varun Gakhar
Varun Gakhar is a legal journalist at NDTV Profit. He obtained his degree i... more
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