Bhushan Power Insolvency: ED concedes appeal against JSW Steel; Supreme Court orders restitution of attached properties

The Enforcement Directorate (ED) recently decided not to pursue its appeal before the Supreme Court against JSW Steel's takeover of Bhushan Power and Steel (Bhushan) under the Insolvency and Bankruptcy Code (IBC) [Committee of Creditors Vs Directorate of Enforcement & Ors]..It also returned assets valued at ₹4,025 crore to JSW Steel, the successful bidder to take control of Bhushan Power pursuant to the insolvency process under IBC. The restitution was made after the Supreme Court’s order of December 11 directing ED to hand over the attached properties of Bhushan Power. The order itself was passed after the ED decided not to pursue its case relating to attachment of assets of Bhushan in view of Section 32A of IBC. Section 32A was inserted in IBC with effect from December 2019 and it provides immunity to the corporate debtor and its assets from prosecution or attachment if a resolution plan of a company under insolvency is approved. This would mean attachment of properties by ED would also cease on the approval of a resolution plan.The ED had previously argued that this immunity should not apply to the Bhushan Power case, as the asset attachment by the ED preceded the introduction of Section 32A.However, during the hearing of the matter on December 2, Solicitor General (SG) Tushar Mehta, appearing for ED, had told the Supreme Court Bench of Justices Bela Trivedi and Satish Chandra Sharma that in view of Section 32A, the ED's appeal may not have to be argued, a departure from its previous stance..Subsequently, when the matter was taken up on December 11, the ED filed an affidavit before the top court, stating that in view of the peculiar facts and circumstances of the case and without prejudice to the rights and contentions of the ED with regard to the investigation of the case registered against the promoters of Bhushan Power, JSW be permitted to take control of the attached properties. The Court took into account the said submission and proceeded to direct the following:"The Appellant-ED is directed to handover and the Respondent successful Resolution Applicant JSW is directed to take over the control of the properties of Corporate Debtor-Bhushan Power and Steel Ltd., provisionally attached vide the order dated 10.10.2019 passed by the E.D., immediately in view of Section 8(8) of the PMLA read with Rule 3A of the said Rules.”The appeals before the Supreme Court involved the interplay of insolvency proceedings under the IBC and asset attachment by the ED under the Prevention of Money Laundering Act (PMLA). The ED had attached Bhushan Power's assets under Section 5 of the PMLA because the former promoters of BPSL were accused of defrauding banks and diverting funds for personal gains.The Committee of Creditors (CoC) challenged the ED attachment during the corporate insolvency resolution process (CIRP), claiming it violated IBC protections.ED opposed JSW Steel's resolution plan, arguing that the assets attached under PMLA were tainted and that the benefit under Section 32A of the IBC will not accrue to JSW Steel.The National Company Law Tribunal (NCLT) approved JSW Steel's resolution plan in September 2019.In February 2020, the National Company Law Appellate Tribunal (NCLAT) too approved the plan and also vacated the attachment of Bhushan Power's properties by ED.The ED then approached the Supreme Court against the same contending that the benefit of Section 32A will not apply to this caseIt argued that its attachment rights were unaffected by the insolvency proceedings..The ED contended that its actions were consistent with the PMLA, as the attached properties were proceeds of crime. It also claimed that Section 32A of the IBC, which shields new resolution applicants from pre-insolvency liabilities, did not apply retrospectively. To resolve the matter, ED proposed allowing JSW Steel to take control of the attached properties as restitution under PMLA provisions, without prejudicing to ongoing investigations against BPSL’s promoters.The Supreme Court, without deciding on the broader legal questions, disposed of the appeals based on mutual agreement among the parties. The ED retained the right to continue its investigation against the former promoters of Bhushan Power, while JSW Steel was allowed to take control of the assets. The Court emphasised that this order is specific to this case and will not act as a precedent for future cases."It is further clarified that the Court has not expressed any opinion on the interpretation of Section 32A (2) of IBC or on the powers of the E.D. to attach the property of the Corporate Debtor which is undergoing the Corporate Insolvency Resolution Process, or on any other legal issue involved in the other connected Appeals which are pending for consideration before this Court,” the Court said. .The restitution was carried out under the second proviso to Section 8(8) of PMLA, which allows for the return of property to rightful claimants pending trial, following Rule 3A of the PMLA Restoration of Property Rules..JSW Steel Ltd. was represented by Senior Advocates Neeraj Kishan Kaul and Gopal Jain, along with a team from Karanjawala & Co. comprising Senior Partner Nandini Gore, Partner Tahira Karanjawala and advocates Swati Bharadwaj, Akarsh Sharma, Manvi Rastogi and Sharanya Ghosh.Committee of Creditors were represented by Senior Advocates Dr Abhishek Manu Singhvi and Sanjiv Sen with a team from Cyril Amarchand Mangaldas comprising Partner Raunak Dhillon and Advocates Srideepa Bhattacharya, Isha Malik and Anchit Jasuja.ED was represented by Solicitor General Tushar Mehta and advocate Zoheb Hossain. Meanwhile, ED has also challenged a recent Bombay High Court ruling which had held that the NCLT has jurisdiction to lift attachments under the PMLA.That appeal by ED is pending before a Supreme Court Bench headed by Justice AS Oka which has stayed the High Court ruling.[Read Order]