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Insolvency Code is 'ultra vires' of constitutional rights: Bhushan Power's Sanjay Singal

He has filed a writ petition in Supreme Court. This could have an impact on all insolvency proceedings

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A writ petition filed in the Supreme Court by Sanjay Singal, promoter of distressed Bhushan Power & Steel, has questioned some of the underlying principles of the Insolvency & Bankruptcy Code (IBC).

The petition says that some of IBC sections, including the contentious Clause 29A, are 'ultra vires' of some of the rights guaranteed by the Constitution of India. Ultra vires means beyond its legal power.

The petition, which will heard on December 11, underlines a few points.

Bhushan Power was admitted to the National Company Law Tribunal (NCLT) on July 26, 2017. But the IBC was amended in November last year and Section 29A was inserted.

The section bars promoters of defaulting companies from bidding for distressed assets and it was implemented with retrospective effect.

Singal, who had also submitted a resolution plan for Bhushan Power & Steel, was now barred from participating in the insolvency process.

"Thus, the vested rights of persons such as the petitioner is sought to be taken away, which is contrary to the well-established principles of law," the petition said.

"Singal has made a valid point. It is usually in criminal law that amendments are made with retrospective effect," said a lawyer from a leading Mumbai-based legal firm.

The race

Bhushan Power & Steel owes banks about Rs 45,000 crore. Tata Steel initially led the race, with its initial bid of Rs 17,000 crore outclassing JSW Steel's Rs 11,000-crore offer.

But the race changed course twice. First, the UK-based Liberty House bid Rs 18,500 crore. But even as banks started to prefer Tata Steel's resolution plan, JSW Steel re-entered the race with a Rs 19,700 crore bid.

Tata Steel though has challenged the decision to consider Liberty House's resolution plan and the hearing continues at NCLT.

Along with that, Singal's petition could bring a new twist to the race.

"The petitioner submits that the rules of the game are being changed in such a manner that the petitioner's rights are reduced in the company created by him and compulsory transfer of the said company is incurred at unnaturally discounted price," says the petition.

The liquidation issue

Singal is not amused by bid amounts. He pointed out that "application of certain amendments and the non-application of others is leading to an imbalance in the entire process. In the bargain, Bhushan Power & Steel, which admittedly is a 'going concern', is being offered for takeover as per its liquidation value of a mere Rs 9,700 crore, instead as a 'going concern' of Rs 25,000 crore."

"Singal said he is willing to pay fair value, which is much higher than any of the bids. But he is being pulled back by Clause 29A," said a senior official from another steelmaker, adding: "What the Supreme Court has to say about these points will have an impact on many resolution cases."

Excessive powers

Singal has also asked why IBC 'excessively gives legislative powers' to the banks who 'skew the resolution process' in their own favour as compared to the dues of other stakeholders.

This was highlighted in the case of Essar Steel's resolution process where some of the lenders moved the courts, alleging that they have been neglected by other banks in the Committee of Creditors.

Singal stated said the IBC treats equals, unequally.
First Published on Dec 10, 2018 05:56 pm
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