The Department of Financial Services (DFS) has reviewed the Supreme Court order on the liquidation of Bhushan Power and Steel (BPSL), in consultation with the lenders, M Nagaraju, secretary, DFS said in Mumbai on Monday.
“I have already reviewed (the order) with all the lenders. We have taken a position, we have studied the judgement, we have got our advocates’ view on the judgment,” Nagaraju said. He added that the government is taking a view on how to approach the judgment. “We will finalise soon,” Nagaraju added.
Sajjan Jindal-led JSW Steel, the country’s biggest steel producer, has also said it will review the order.
The bankrupt BPSL had been acquired by JSW Steel, nearly five years ago, via the corporate insolvency route for Rs 19,350 crore. The National Company Law Apellate Tribunal (NCLAT) had approved the resolution plan in February 2020.
A two-judge bench of the apex court on Friday rejected the resolution plan on the grounds that it was in “flagrant violation and contravention” of the provisions of the Insolvency and Bankruptcy Code (IBC) and the Corporate Insolvency and Resolution process(CIRP) regulations.
For instance, the SC observed that the equity commitment, made by JSW Steel, as part of the resolution plan for an amount aggregating Rs 8,550 crore, to be infused upfront on the effective date, “was also not complied with by JSW”. This was one of the main criteria on which JSW had scored the best in the evaluation matrix. Not only did JSW not respect and honour the commitments, the court observed that “on the contrary tried its level best to delay the implementation of the resolution plan without any cogent reason or justification”. The court said the implementation was delayed by two and a half years after the plan had been approved by the National Company Law tribunal, leaving the “creditors in the lurch”.
The judges observed that the Committee of Creditors (CoC) had failed to protect the interest of the creditors, taking contradictory stands in court accepting the payments from JSW without any demurrer. The court said the CoC had supported “JSW to implement its ill-motivated plan against the interest of the creditors”. The CoC was led by Punjab National Bank and included State Bank of India and the CoC had raised a claim of about Rs 47,158 crore before agreeing to an upfront payment of Rs 19,350 crore, implying a haircut of close to 60%.
The court also pulled up the resolution professional (RP) saying he had “utterly failed to discharge his statutory duties “as prescribed in the IBC and the CIRP Regulations” during the course of entire CIRP proceedings.”
Legal experts believe JSW Steel’s options are limited but say it could file a review petition challenging the order within 30 days from the date of judgement. Of course, this timeline could be extended if the court is on vacation. Eminent legal expert, HP Ranina, observed that JSW Steel can try and salvage the deal by offering to infuse the entire Rs 8,550 crore as equity rather, as was originally approved, than largely in the form of compulsorily convertible debentures.
After falling 5.81% on Friday, the JSW Steel stock lost further ground on Monday, giving up 1.76% to close the session at Rs 955 per share. Morgan Stanley noted the development was “materially negative” while CLSA put out an “underperform” call on the stock with a price target of Rs 825 per share. Nuvama has a “reduce” rating on the stock with a price target of Rs 977 apiece.
BPSL produced about 1 million tonne of crude steel during the three months through December 2024, about 14% of JSW’s total production. The unit reported operating earnings before interest, tax, depreciation and amortisation (Ebitda) of Rs 540 crore, almost 10% of the parent’s total ebitda, according to Bloomberg.