Kalyani Transco vs. Bhushan Power and Steel Ltd. & Others,
Facts of the Case
The current case concerns the insolvency proceedings instituted against Bhushan Power and Steel Ltd. (BPSL), one of the bigger defaulters cited by the Reserve Bank of India in its so-called “Dirty Dozen” list of non-performing asset accounts. The CIRP was initiated on Punjab National Bank’s application, and the petition was admitted on 26 July 2017 by the NCLT. After that, claims of financial and operational creditors were invited and admitted for over ₹47,000 crore and ₹621 crore, respectively. The Committee of Creditors (CoC) shortlisted three resolution applicants, namely JSW Steel, Tata Steel, and Liberty House. Following lengthy deliberations and talks, the CoC sanctioned JSW Steel’s resolution plan in October 2018. The NCLT sanctioned the plan on 5 September 2019 with some conditions. But a few days later, the Enforcement Directorate (ED) had issued a Provisional Attachment Order (PAO) under the Prevention of Money Laundering Act (PMLA) attaching assets of BPSL on 10 October 2019. JSW Steel had challenged certain terms of the NCLT order with the NCLAT, which had altered them on 17 February 2020. Several appeals then followed from operational creditors, erstwhile promoters, and government authorities, challenging several features of the process, and the issues were ultimately heard by the Supreme Court of India.
Issues
Whether JSW Steel’s appeal before the NCLAT under Section 61 of IBC was sustainable when it was the successful resolution applicant and not aggrieved by the approval of its own plan?
Whether NCLAT had jurisdiction to alter NCLT’s conditions and to examine the ED’s provisional attachment order under PMLA?
Whether the procedural conditions under Section 29A and Section 30(1) of IBC were properly complied with, particularly the eligibility of JSW Steel and the compliance certificate by the Resolution Professional?
Arguments from Both Parties
The appellants, who were Kalyani Transco (a functioning creditor), Sanjay Singal (a previous promoter), and the State of Odisha, contended that the resolution process was marred by procedural defects. They referred to a lack of proper disclosure in the resolution plan by JSW Steel, specifically regarding a joint venture agreement with BPSL, which may reflect an exclusionary “related party” relationship under Section 29A of the IBC. They also stressed that the RP had not furnished the required compliance certificate (Form H), which seriously questioned JSW’s admissibility. The State of Odisha argued that their statutory dues like entry tax and electricity charges, had been ignored, and their claims had never been placed before NCLT or NCLAT, thus flouting principles of natural justice.
On the other hand, the CoC, along with the respondents JSW Steel, justified the resolution process. JSW asserted that its appeal before NCLAT was reasonable in light of certain conditions laid down by the NCLT, as they were outside its mandate and negated commercial viability. The CoC stressed that the resolution plan had already been largely executed, such as paying ₹19,350 crore, and that reopening the case would be prejudicial to the interests of creditors and stakeholders. The ED, in defending its PAO, contended that its action was lawful and, in its jurisdiction, as it related to proceeds of crime that were accrued before CIRP commencement and could not be precluded by insolvency proceedings. They held that the NCLAT did not have the jurisdiction to intervene in its statutory mandate under PMLA.
Final Judgment
The Supreme Court gave a detailed judgment resolving all important questions. It held that the appeal by JSW Steel to NCLAT was not maintainable in terms of Section 61 of the IBC as it had no grounds at all of the five specially listed under Section 61(3). JSW could not be regarded as “aggrieved” with an order of approval of its resolution plan. The Court states that the NCLAT severely faulted for overstepping its jurisdiction, particularly in granting relief that virtually overruled a statutory attachment order ordered by the ED. The Court ruled that NCLT and NCLAT cannot exercise judicial review of orders passed by statutory functionaries such as the ED under the PMLA and that so doing was ultra vires its powers under statute.
On compliance with Section 29A and procedural matters, the Court observed that the Resolution Professional had failed to file the necessary document, nor was there any confirmation of JSW’s affidavit of eligibility. This, in addition to the withholding of JSW’s joint venture agreement with BPSL, cast tremendous doubt upon its eligibility to be a resolution applicant. Nevertheless, as the ED subsequently withdrew objections and permitted the transfer of attached assets, and JSW had materially put the plan into effect, the Court allowed JSW to continue to control BPSL’s assets but made it clear that this did not lay down any precedent or determine the principle on the retroactive applicability of Section 32A of IBC. Lastly, the Court ruled that operational creditors and state agencies were entitled to appeal as “persons aggrieved”, rejecting submissions that they did not have locus once their claims were paid or rejected.
Full Judgment – https://www.casemine.com/judgement/in/6768a252818b345f27efc497