Home » Between The Lines » NCLAT upholds JSW Steel’s Resolution Plan for Bhushan Power, provides immunity from prosecution by ED

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The National Company Law Appellate Tribunal (“NCLAT”) by its judgement dated February 17, 2020 in the case of JSW Steel Limited v. Mahender Kumar Khandelwal and Others (Company Appeal (AT) (Insolvency) No. 957 of 2019) allowed JSW Steel to acquire Bhushan Power and Steel Limited (“BPSL”) for INR 19,700 crores, while at the same time providing immunity from prosecution from the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 (“PMLA”).


The Successful Resolution Applicant of the Corporate Insolvency Resolution Process (“CIRP”) of BPSL approached the NCLAT with a view to modify or set aside the conditions (e), (f), (g), (i), (j) and (k) of the impugned order dated September 05, 2019 passed by the National Company Law Tribunal, Delhi (“NCLT”). Another objection surrounding these conditions was the power of the Enforcement Directorate (“ED”) to attach the properties of BPSL after change of hands, parallelly addressing the larger issue of criminal liability post CIRP.

The relevant part of the condition imposed by the NCLT is:

“The criminal proceedings initiated against the erstwhile Members of the Board of Directors and others shall not affect the JSW-H1 Resolution Plan Applicant or the implementation of the resolution plan by the Monitoring Agency comprising of CoC and RP. We leave it open to the Members of the CoC to file appropriate applications if criminal proceedings result in recovery of money which has been siphoned of or on account of tainted transactions or fabrication as contemplated under the provisions of the Code or any other law. Those applications shall be considered in accordance with the prevalent law.”

Thereafter it was informed to the NCLAT that a part of the assets of BPSL were attached via Deputy Director of ED’s order dated October 10, 2019.

The Union of India was required to clarify its stand and accordingly it filed an affidavit in reply through the Ministry of Corporate Affairs in consultation with the Department of Financial Services and Banks stating:

  1. The provision of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 by which Section 31(1) was amended, makes it amply clear that a resolution plan is binding on Central Government and all statutory authorities.
  2. It is further submitted that the erstwhile management of a company would be held responsible for the crimes, if any, committed under their regime and the new management taking over the company after going through the Insolvency and Bankruptcy Code, 2016 (“IBC”) process cannot be held responsible for the acts of omission and commission of the previous management. In other words, no criminal liability can be fixed on the successful resolution applicant or its officials.
  3. In so far as the corporate debtor or its assets are concerned, after the completion of the CIRP, that is, a statutory process under the IBC, there cannot be an attachment or confiscation of the assets of the corporate debtor by any enforcement agencies after approval of the resolution plan.
  4. The purpose and scheme of the CIRP is to hand over the company of the corporate debtor to a bona fide new resolution applicant. Any threat of attachment of the assets of the corporate debtor or subjecting the corporate debtor to proceedings by investigating agencies for wrong doing of the previous management will defeat the very purpose and scheme of CIRP which, inter alia, includes resolution of insolvency and revival of the company, and the efforts of the bank to realise dues from their Non-Performing Assets (NPAs) would get derailed.
  5. In light of the above, it is respectfully submitted that the ED while conducting investigation under PMLA is free to deal with or attach the personal assets of the erstwhile promoters and other accused persons, acquired through crime proceeds and not the assets of the corporate debtor which have been financed by creditors and acquired by a bona fide third party resolution applicant through the statutory process supervised and approved by the adjudicating authority under the IBC. Therefore, upon an acquisition under a CIRP by a resolution applicant, the corporate debtor and its assets are not derived or obtained through proceeds of crime under the PMLA and need not be subject to attachment by the ED after approval of resolution plan by the adjudicating authorities.

Considering the opposite stand taken by the ED, the orders of the NCLT and that of the Deputy Director of ED were stayed. Meanwhile, the newly inserted Section 32A of the IBC came into effect. The NCLAT asked the ED and the Ministry of Corporate Affairs to file an additional affidavit in reply in light of the same.

The Union of India through Regional Director, Ministry of Corporate Affairs, took a specific plea that JSW Steel (Resolution Applicant) does satisfy the conditions prescribed under Section 32A and cannot be held to be ineligible in terms of Section 32A(2)(i). JSW Steel was not held to be under investigation by the Central Bureau of Investigation (CBI), Serious Fraud Investigation Office, nor held to be a related party.


  1. Whether after approval of a ‘Resolution Plan’ under Section 31 of the IBC, is it open to the Directorate of Enforcement to attach the assets of the ‘Corporate Debtor’ on the alleged ground of money laundering by erstwhile promoters.
  2. Whether JSW Steel (Resolution Applicant) is a related party to BPSL (Corporate Debtor).


The ED took a plea that Section 32A introduced with effect from December 28, 2019 is prospective and would not apply to resolution plan which has already been approved under Section 31 of the IBC. It was submitted that the resolution plan was approved on September 05, 2019 and Section 32A has come into force on December 28, 2019.

Another contention of the ED was that JSW Steel was a related party to BPSL and therefore, not an eligible party. It was stated that during the course of PMLA investigation, it has come to notice that BPSL and JSW Steel are associated as shareholders holding 24.09% and 49% equity respectively in a joint venture company namely ‘M/s. Rohne Coal Company Private Limited’. As per the updated information filed with Ministry of Corporate Affairs in Annual Return 2018-19, the company was formed in 2008 and is still in operation.

Observations of the NCLAT

The NCLAT rejected the contention of ED regarding prospective effect of the amendment, and held that “the preamble suggests that a need was felt to give the highest priority in repayment to last mile funding to corporate debtors to present insolvency in case the company goes into corporate insolvency resolution process or liquidation, to provide immunity against prosecution of the corporate debtor, to prevent action against the property of such corporate debtor and the successful resolution applicant subject to fulfilment of certain conditions and to fill the critical gaps in the corporate insolvency framework, it has become necessary to amend certain provisions of the Insolvency and Bankruptcy Code, 2016.”

The ordinance having been issued pursuant to direction of the NCLAT to the Central Government, applies squarely to JSW Steel.

With reference to the argument of a related party transaction, the NCLAT held that a person cannot be held to be ineligible till it is shown that it comes within any of the disqualifications under clauses (a) to (j) of Section 29A of the IBC. JSW Steel had clearly declared in their pleadings that the joint venture was entered into at the suggestion and behest of Government of India, through Ministry of Coal that had suggested the venture through their letter dated April 09, 2017 during the coking coal block allocation. Where a party for the purpose of its business, if mandated by the Central Government to join hands together and are forced to form a consortium or as joint associate, such person cannot be held ineligible in terms of Section 32A(1)(a) on the ground of ‘related party’.

Thus, it was held that just by virtue of having investment in such downstream joint venture company, uniquely at the behest of the Central Government, does not make them a related party.

The NCLAT further held that in any event, by virtue of Section 238 of the IBC, the IBC has an overriding effect over anything inconsistent therewith in any other law. Accordingly, it is clear that subsequent promulgation of the ordinance is merely a clarification in this respect. Therefore, it is ex facie evident that the ordinance being clarificatory in nature, must be made applicable retrospectively.

Decision of the NCLAT

In view of the above, the NCLAT held that the attachment of assets of the ‘Corporate Debtor’, which is BPSL in the present case, by the Directorate of Enforcement pursuant to order dated October 10, 2019 is illegal and without jurisdiction.

Vaish Associates Advocates View

This judgement of the NCLAT is based on sound reasoning and a logical application of the amendment that will declutter the numerous disputes pending at various levels.

A number of disputes surmount the Special Judge under the Maharashtra Protection of Interest of Depositors Act, that involves attachment of properties by the Competent Authority under the statute, thereby creating a conundrum involving arguments on applicability of the ordinance and matters of proof regarding ‘proceeds of crime’. A similar situation prevails at the level of the ED, CBI, Serious Fraud Investigation Office and the Ministry of Corporate Affairs, allowing this judgement to demystify the dispute and maintain the purpose of the IBC.

The judgement also takes a strikingly liberal view of ‘related party transactions’, which in this case was a unique position for the companies, but nonetheless creates a precedent for such cases in the future.

For more information please write to Mr. Bomi Daruwala at [email protected]