Time, Committee Of Creditors, CBI, ED Probes — The Many Skeletons Of JSW Steel-BPSL Case

The Supreme Court's recent judgement cancelling JSW Steel Ltd.'s resolution plan for Bhushan Power and Steel Ltd., and ordering the latter's liquidation points the needle towards one well known, yet scarcely followed parameter of insolvency processes—time.

Meanwhile, the other key factors for this failure, as per the court, are the committee of creditors, resolution plan and even JSW Steel.

In its detailed ruling, the apex court mentioned that just because the insolvency code is silent on the phases of implementing a resolution plan, this should not allow the successful resolution applicant, that is JSW Steel, to disregard its terms.

In this case, JSW Steel failed to implement the approved Resolution Plan for nearly two years, despite no legal barriers.

The Timeline

On June 13, 2017, the Reserve Bank of India released a list of 12 accounts that summed up to a quarter of non-performing assets. This bunch was given the name 'Dirty Dozen' and BPSL was one of them. In the same year, on July 26, Punjab National Bank initiated insolvency proceedings against the company.

By 2018, JSW Steel had expressed interest in BPSL and in February 2019, JSW Steel's plan was selected and approved by the Committee of Creditors, and was then submitted to the National Company Law Tribunal.

However, on April 5, 2019, the Central Bureau of Investigation and Enforcement Directorate got involved with BPSL. While the CBI filed a case against the company's former management, the ED started investigating them for suspected money laundering.

Thereafter, on Sept. 5, 2019 NCLT approved JSW Steel's resolution plan but attached certain conditions. The company challenged these conditions in the National Company Law Appellate Tribunal.

At the same time, several parties — including BPSL's former promoters, operational creditors, and the State of Odisha — also filed appeals questioning the NCLT's approval of JSW Steel's plan.

During this period, the ED attached some of BPSL's assets under the money laundering case. While JSW Steel's appeal was being heard, the NCLAT temporarily put a hold on the ED's attachment of these assets.

And finally, in February 2020, NCLAT allowed JSW Steel to move forward with its resolution plan, but asked the company to make a one-time payment towards the defaults with government agencies. All other cases that were obstacles in the resolution plan were also dismissed.

Thereafter, the parties against the resolution plan reached the Supreme Court.

The Flaws

The judges noted that JSW Steel had presented an unconditional resolution plan and secured the highest score from the Committee of Creditors by making major commitments, particularly related to upfront payments and equity infusion.

However, once the plan was approved, JSW Steel delayed implementation under the excuse of ongoing litigation, even though the plan was meant to be implemented irrespective of any such hurdles.

The court found this conduct to be mala fide, stating that JSW Steel used the delay in court proceedings to its advantage, which showed a misuse of the legal process.

JSW Steel had delayed making payments to financial creditors by 540 days and to operational creditors by 900 days, and failed to comply with its promise of injecting Rs 8,550 crore in equity on the effective date.

It had also quietly got the date extension from a sub-group of the CoC that no longer had any legal standing to make such decisions. The court took note of this and stated that this was done purely for JSW Steel's own benefit.

The Glare On Committee Of Creditors

The apex court, in its 105 page order, noted that the Committee of Creditors initially pointed out many problems with how JSW Steel was not following the insolvency code. This was done during its 18th and 19th meetings. But despite raising serious concerns, the CoC went ahead and approved JSW Steel's resolution plan, without discussing whether those issues had been resolved.

Later, during the court proceedings, the CoC again accused JSW of misusing the legal process and delaying the plan's implementation. Still, it ended up accepting JSW's payment of over Rs 19,000 crore after nearly two years.

The court said that, while normally the commercial decisions of the CoC are given priority, the way the CoC kept changing its position raised serious doubts about its role. At one point, the CoC had even claimed JSW Steel owed it compensation and interest because of the delay, which caused losses every day.

This flip-flop in CoC's stance made the court critical of its actions.

The Road Ahead

Only a few days have passed since the apex court came out with a surprising liquidation order for BPSL, but there has been some idea about the way forward. As reported by NDTV Profit, JSW Steel and CoC are looking to file separate review petitions in the case.

Meanwhile, it has also been reported that the Department of Financial Services is also looking at the Supreme Court's ruling.