JSW Steel Takeover Of Bhushan Power & Steel: NCLAT Grants Immunity From Criminal Investigations

JSW Steel can take over Bhushan Power & Steel without threat of criminal investigations against the insolvent company, says NCLAT.

The JSW Steel Ltd. logo is displayed on an overhead conveyor at the company’s manufacturing facility in Dolvi, Maharashtra, India. (Photographer: Adeel Halim/Bloomberg)
The JSW Steel Ltd. logo is displayed on an overhead conveyor at the company’s manufacturing facility in Dolvi, Maharashtra, India. (Photographer: Adeel Halim/Bloomberg)

Bhushan Power & Steel Ltd. will be exempt from all criminal investigations after its takeover by JSW Steel Ltd. under the insolvency law, the National Company Law Appellate Tribunal said on Monday.

Last month, the NCLAT had reserved its judgment on JSW Steel’s purchase of the insolvent Bhushan Power & Steel. In October, the appellate tribunal had ordered a freeze on the Rs 19,700-crore payment by the Sajjan Jindal-led mill under the resolution plan.

JSW Steel had moved the appellate tribunal seeking to extinguish all present and future liabilities on account of criminal investigations against Bhushan Power & Steel, contending that an absence of any such protection would jeopardise the feasibility and viability of its resolution plan. The Enforcement Directorate had seized the assets of the insolvent steelmaker.

This is a plus for the process in terms of certainty, which is what the process needs, said Nilang Desai, partner at law firm AZB & Partners, adding what this is saying is that any criminal liability on an individual in relation to past acts will continue. “Any criminal liabilities on an individual which are now coming to the company, obviously shouldn’t attach,” he told BloombergQuint in an interview.

“I don’t think there should be an issue that this law overrides all other criminal penalties and why that should be struck down but if that is appealed on that point, we will have to wait and see,” Desai said.

Senior Advocate AS Chandhiok, too, said the NCLAT’s judgment upholds the position that the Insolvency and Bankruptcy Code prevails over the Prevention of Money Laundering Act. “Agencies can probe wrongdoing by erstwhile directors but assets that are part of the resolution process cannot be touched.”


In December, the insolvency law was amended to ring-fence a corporate debtor, after its resolution, from criminal proceedings arising from offences committed by the previous management.

But the Enforcement Directorate had argued before the NCLAT that the immunity under the new provision wouldn’t apply to JSW Steel. The section isn’t retrospective in nature and will not cover the companies whose resolution plan was approved before the ordinance came into effect, the investigative agency had said.

The amendment in the form of Section 32A having come into force after the resolution plan was approved in this case, and the fact that Section 32A has not been given retrospective effect, would mean that it was never intended that the benefit of Section 32A would apply to the resolution plan prior to Dec. 28, 2019. Accordingly, it is submitted that that the appellant in this case cannot take the benefit of Section 32A.

The investigative agency had also argued that even if this section is held to be prospective, the benefit of it won’t be available to Bhushan Power & Steel and its acquirer JSW Steel. This, because the section doesn’t provide immunity to the acquirer if it was a “related party” of the corporate debtor. And since, Bhushan Power & Steel and JSW Steel were joint venture partners in Rohne Coal Company, Section 32A won’t be applicable.

The successful resolution applicant [JSW Steel] being a “related party” of the corporate debtor [Bhushan Power & Steel], the benefit of Section 32A(l) will not be available to the corporate debtor and its liability shall not cease for the impugned offence under PMLA, 2002.

The NCLAT rejected the investigative agency’s objections today.

Vishal Chandak, senior research analyst at Emkay Global Financial Services, said that was a negative for JSW Steel’s stock. “This should allow for completion of sale of Bhushan Power & Steel and add Rs 19,700 crore to the consolidated debt of JSW Steel,” he said. “JSW Steel has said previously, it will push the debt to a joint venture and ring-fence the parent’s balance sheet.”