Mumbai: A bankruptcy court on Thursday approved JSW Steel Ltd’s 20,000 crore bid to take over bankrupt Bhushan Power and Steel Ltd, marking the second successful resolution of a major steel asset under the insolvency code.

Bhushan Power was part of the original dirty dozen cases identified by the Reserve Bank of India to be referred to bankruptcy courts.

JSW Steel is, however, not entirely pleased with the verdict of the Delhi bench of the National Company Law Tribunal (NCLT) and may appeal the order before an appellate tribunal, seeking further indemnities from liabilities of Bhushan Power, two people familiar with the internal deliberations said, requesting anonymity.

JSW Steel has offered an upfront cash payment of 19,700 crore to Bhushan Power’s lenders, besides infusing 350 crore into the steelmaker to revive it. JSW Steel had also approached the NCLT seeking protection from litigation, considering that a forensic audit of the company’s finances had revealed potential fraud and siphoning off of money by its erstwhile promoters. The allegations are being investigated by the Central Bureau of Investigation. JSW Steel had also asked the court for relief from statutory dues under the Income Tax Act, Department of Registration and Stamps, Ministry of Corporate Affairs and RBI, among others.

In its judgment, the NCLT said: “We do not feel persuaded to accept the prayer made in the resolution plan, yet the resolution applicant may file appropriate actions before the competent (statutory) authorities."

JSW also sought clarity on the distribution of profits earned by the company during the two-year long resolution period, and whether this accrues to JSW Steel or will be distributed among creditors.

In July, M.V.S. Seshagiri Rao, joint managing director and Group chief financial officer, JSW Steel, said it would request the NCLT for a “clean company". “We also need to look at the rights of resolution applicants. In many cases, there is a lot of litigation coming in after control has changed hands. There is a disturbing judgment from the Delhi high court which says that the Prevention of Money Laundering Act gets precedence over the IBC. In Bhushan Power, we approached the NCLT for protection that the assets after change in control will not be accessed through any litigation. We have to see if NCLT will give that relief or not."

A JSW Steel spokesperson, while answering Mint’s queries on whether it approach a higher court for further relief, said: “We are going through the judgment and, as per our legal inputs, we will take a call tomorrow (Friday)."

A member of Bhushan Power’s committee of creditors said, requesting anonymity, that the lenders were happy with the development, but there maybe further delays as JSW Steel may ask for further relief. They have a 30-day timeline within which they can take a call."

Sitesh Mukherjee, Partner and Head of Disputes Practice, Trilegal told Mint: ““I think the idea behind the IBC is to provide a clean slate to the resolution applicant. Where statutory dues are concerned, the position in the waterfall is clear that they come last, after financial and operational creditors and all other dues are paid. So once a resolution plan is approved, what is left in the end is only what they are entitled to. Section 31 says resolution plan shall be binding on all stakeholders including central or state government authorities to whom a debt in respect of the payment of dues is owed."

Mukherjee added: “Under Section 30 (4), the committee of creditors can now take into account the order of priority amongst creditors while approving the manner of distribution of proceeds under the resolution plan. It is clear that the IBC route settles all monetary claims on a company. With regard to the retention of profits, the profits that accrue during the resolution period are an asset to the company and stay within the company and when a resolution applicant takes over the company, it by default goes to the resolution applicant. If the lenders wanted a claim on these profits, they should have insisted on these terms at the time when they accepted the resolution plan."

BPSL operates a 3.5 million tonne (mt) steel plant in Odisha. Under its earlier promoter Sanjay Singhal, the company had accumulated debt of more than 47,000 crore, of which the principal outstanding to banks was 42,100 crore. BPSL was one of firms in Reserve Bank of India’s “dirty dozen" list of NPA accounts referred to the bankruptcy courts under the Insolvency and Bankruptcy Code (IBC) in June 2017.

Through its nearly 800-day long resolution process, the case has seen several twists and turns. At the time of submission of bids, the potential ownership of the BPSL assets had been hotly contested between Tata Steel, India’s largest steel manufacturer, and its fierce rival, JSW Steel. UK-based Liberty House had thrown its hat in the ring as well, but JSW Steel upped its bid at the last minute to beat both of them. The resolution process itself meandered along even as there were successive changes made to the IBC, altering how the resolution amount shall be paid to different classes of creditors. Finally, earlier this year, the details of the CBI investigation in the Singhal family , that owned BPSL. NCLT said in its judgement that the criminal proceedings initiated against the previous board members shall continue even after the company has changed hands.

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