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Bhushan Steel, first one of the 12 large cases to be successfully resolved and taken over by Tata Steel last year, faced yet another insolvency petition recently. An operational creditor moved against Bhushan Steel claiming a default amount of Rs. 17.97 crores.
Bamnipal Steel Limited, a wholly owned subsidiary of Tata Steel Limited, had acquired majority shareholding in Bhushan Steel last year as part of the takeover pursuant to the approved resolution plan. The new application against Bhushan Steel was moved by Vistrat Real Estates Private Limited in its capacity as an operational creditor.
One of the contents of the approved resolution plan submitted by Tata Steel pertains to a Memorandum of Lease (MoL) entered into between Bhushan Steel and Vistrat. The MoL was entered into on May 1, 2015, and the CIRP was initiated on July 26, 2017. As per the MoL, the lease rental to be paid by Bhushan to Vistrat was Rs. 6 crore per month. During the course of the CIRP, an independent valuer ascertained that the rental sum of Rs. 6 crore was much higher than the market value. The independent valuer accordingly assigned a value of Rs 5.61 crores. Further, the premises for which the MoL was entered into, was vacated on September 10, 2018, following completion of CIRP.
Interestingly, the approved resolution plan described the MoL as ‘value leakage’ and an ‘onerous transaction’. Additionally, the resolution plan also provided for no liability to related parties, associates and joint ventures.
The NCLT, in this case, found that Vistrat was a related party to Bhushan Steel (prior to the commencement of CIRP) and its erstwhile promoters. Thus, liabilities of Bhushan Steel to such a party stand excluded in terms of the Resolution Plan.
To arrive at the conclusion that Vistrat was related to Bhushan Steel, the NCLT noted the presence of Neeraj Singal and Brijbhushan Singal (erstwhile promoters) as the signatories to the Memorandum of Association of Vistrat and its initial shareholders. The NCLT further noted the authorisation in favour of the Singals to act on behalf of Vistrat, though they were not directors of Vistrat at that time. The NCLT also observed that the transfer of shares to other parties, to Ritu Singal (wife of Neeraj Singal) took place less than two years prior to the commencement of CIRP of Bhushan Steel.
Based on the above observations, the NCLT concluded that Bhushan Steel (prior to commencement of CIRP) had substantive control over Vistrat.
While Section 11 of the IBC does not prevent a creditor from filing a fresh petition post the Approval Order, the NCLT held that ‘the only course open to the petitioner was to file its claim before the IRP or RP’. The remedy of filing of a claim has been exhausted and has resulted in the acceptance of Vistrat’s claim partially by the RP, the NCLT held.
While the NCLT order does not refer to the term ‘preferential transactions’, given the nature of the transaction and the timing of the transfer of shares being within the look-back period (of two years), the transaction can be gone into during the CIRP and deemed to be a preferential transaction.
The application was accordingly dismissed.
Senior Advocate UK Chaudhary along with Parminder Singh, Himanshu Vij, Jayant Mehta and Drishti appeared for Vistrat.
Senior Advocate Gopal Jain along with AZB & Partners team VP Singh, Anindita Roychowdhury, Aditya Jalan, Aman Sharma and Karanjawala team Ruby Singh Ahuja, Tahira and Navdeep Matta represented Bhushan Steel.
(Read the order)