Bhushan Power: NCLT rejects promoters’ challenge to maintainability of government's recovery plea

The National Company Law Tribunal (NCLT) rejected the challenge raised by Bhushan Power and Steel Limited’s (BPSL) former promoters and others to the maintainability of the petition filed by Central government seeking recovery of ₹5,431 crore allegedly diverted from the company. [Union of India Vs BPSL]

President Justice Anupinder Singh Grewal and Technical Member Ravindra Chaturvedi held that insolvency resolution and replacement of management did not bar proceedings against those allegedly retaining diverted funds.

“The replacement of the erstwhile management may have brought its control over the company to an end, but it does not, by itself, undo the alleged diversion or remove the prejudice that may have been caused to the company and the public interest,” the Bench said.

The October 30 order dismissed eight applications challenging the maintainability of the government's plea. The applicants included former promoters Sanjay Singal and Aarti Singal, their daughter Priyanka Miglani, associated companies and other individuals.

The tribunal confined its decision to whether the petition could be entertained.

“We reiterate that no finding has been recorded on the merits of the allegations, which remain to be adjudicated,” it clarified.

The Union government, through the Serious Fraud Investigation Office (SFIO), filed the petition under Sections 241(2), 242 and 246 read with Section 339 of the Companies Act, 2013.

Relying on an SFIO investigation report dated May 6, 2022, it sought to hold the respondents personally liable for at least ₹5,431 crore, besides interest. It also sought attachment and realisation of their assets.

The SFIO alleged that funds were siphoned off from BPSL through entities controlled by its former promoters. The transactions allegedly involved routing funds to maintain the debt-equity ratio required for bank financing and purchasing movable and immovable properties.

BPSL entered insolvency proceedings in July 2017 and was acquired by JSW Steel in March 2021.

The applicants argued that Section 241(2), which addresses affairs that are being conducted prejudicially to public interest, could not cover historical transactions after the former management has been replaced.

The NCLT rejected this contention. It held that continued retention of allegedly diverted funds could sustain prejudice to public interest.

“The affairs of a company include the custody, ownership and recovery of its assets; the non-restoration of assets diverted from the company therefore continues to affect the company, its creditors and the public interest, notwithstanding that the persons now managing it are different,” it observed.

The Bench distinguished the protection available to a corporate debtor under Section 32A of the Insolvency and Bankruptcy Code (IBC) from action against other persons and their property.

“The present Petition, however, seeks no relief against BPSL or its property; it is brought for the benefit of the company and its stakeholders against those who allegedly diverted its assets,” it said.

However, it cautioned that the government must establish subsisting prejudice, such as diverted value remaining with identifiable recipients.

The NCLT also rejected the argument that applications filed by the resolution professional under Section 66 of the IBC barred the government’s petition.

To prevent double recovery, it directed that credit be given for amounts recovered or recoverable concerning the same transactions in IBC proceedings.

The tribunal emphasised that the SFIO report did not conclusively establish the allegations.

“Fraud must be pleaded with particulars and proved,” it said.

The government was directed to identify each respondent’s alleged role, relevant transactions and supporting portions of the investigation report within four weeks. Respondents were given four weeks to file replies on merits.

The matter will be heard next on November 26.

Senior Advocate Gyanendra Kumar with advocates Kamalika Bhattacharjee, Saurabh Bhargavan, Spandan Biswal, Sugandh Virmani, Salonee Sirohi, Nikhil and Shivendra Pandey appeared for BPSL.

Advocates Aditya Sikka, Onshi Jakhar and Yuganshi Singh appeared for the Union of India through SFIO.

Advocate K Avinash appeared for former promoters Sanjay Singal and Aarti Singal.

[Read Order]