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While approving the resolution plan submitted by Tata Steel for Bhushan Energy, the National Company Law Tribunal (NCLT) made observations with respect to the term ‘undisputed insolvent’ under Section 29A of the Insolvency and Bankruptcy Code (IBC).
The Resolution Professional for Bhushan Energy filed the resolution plan submitted by H1 bidder, Tata Steel for NCLT’s approval. This plan was vehemently opposed by Naveen Singhal, the ex-promoter of Bhushan Energy. He argued that the termination of Power Purchase Agreements (PPAs) between Bhushan Energy and Bhushan Steel resulted in a lower fair market value for Bhushan Energy. He further contended that this decision of termination was challenged before the Supreme Court, where it is currently pending and till the time there is final adjudication on the issue, the resolution plan must not be approved.
The NCLT noted that the termination was sanctioned by the NCLT, and therefore, was valid. While the Bench did agree that such termination leads to lower fair market value, it also observed that the PPAs were entered into at exorbitant rates and their termination was not illegal.
The other objection raised was with respect to Tata Steel’s ineligibility under Section 29A(a) and (j) of the IBC. According to these provisions, any (connected) person who is ‘undischarged insolvent’, cannot be a resolution applicant. Singhal argued that since Tayo Rolls, a subsidiary of Tata Steel was under Corporate Insolvency Resolution Process (CIRP), Tata Steel is ‘undischarged insolvent’. In this regard, three points were raised before the NCLT:
1. Whether a ‘body corporate’ can be ‘undischarged insolvent’ under IBC or is it only individuals? The NCLT found that on a reading of various provisions, a body corporate can also be ‘undischarged insolvent’ under the IBC.
2. Can a company under CIRP be called ‘undischarged insolvent’? The NCLT noted that Section 7 and Section 9 proceedings are summary proceedings for the determination of default, which are not conclusive. The NCLT further noted that CIRP is a rescue process and while a company is under CIRP, it cannot be said to be ‘undischarged insolvent’
3. Is NCLT the right forum for determination of who is ‘undischarged insolvent’? The NCLT noted that the determination of who is ‘undischarged insolvent’ has been vested with a court of competent jurisdiction, which it isn’t under the IBC. However, who is the competent authority to determine this question, has not been answered.
Accordingly, the NCLT approved the plan submitted by Tata Steel for Bhushan Energy.
Senior Advocate Rajiv Nayar appeared for Tata Steel along with VP Singh (Partner at AZB & Partners), AR Chaudhary, Utsav Trivedi, Sahil Monga and Ruby Singh Ahuja (Partner at Karanjawala & Co), Tahira, Vatsala Rai, Aditya Jalan, Aman Sharma, and Navdeep Matta.
Senior Advocate UK Chaudhary appeared for Neeraj Singhal with Anuj Malhotra and Himanshu Vij.
Senior Advocate Abhinav Vashisht represented CoC with Misha (Shardul Amarchand Mangaldas), Vaijayant Paliwal, and Saurav Panda.
Senior Advocate Arun Kathpalia appeared for RP with Advocates Amar Gupta, Mayank Mishra, and Pallavi Kumar.
(Read the order)