Ex-promoters can’t hold stake in insolvent firms acquired by others: SC

Former promoters cannot continue holding residual stake in an insolvent company after it has been acquired by another entity under the Insolvency and Bankruptcy Code (IBC), the Supreme Court has said.

A bench of Justice MR Shah and Justice Krishna Murari on Friday dismissed an appeal by Neeraj Singal, the former promoter of Bhushan Steel, and others. The court agreed with the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in the case and saw no merit in passing a different order.

The promoters held 2.35 per cent stake in the company after Tata Steel acquired 72.65 per cent shares during the resolution process under the IBC.

“The appellants are the erstwhile promoters and therefore they cannot be continued to be in the Company in any capacity, maybe as shareholders, as rightly observed by the NCLAT,” said the court said.

Bhushan Steel had a debt of about Rs 56,000 crore in 2017, when the Reserve Bank of India identified it as among the 12 big loan defaulters to undergo insolvency.

The NCLT approved Tata Steel’s bid for Bhushan Steel in May 2018. However, the promoters of Bhushan Steel and L&T, a lender to the company, challenged Tata’s bid before the NCLAT

Tata Steel’s resolution plan was to acquire Bhushan Steel for Rs 35,200 crore, pay another Rs 1,200 crore over the next 12 months to creditors and then convert the remaining debt owed to banks to equity.

Bhushan Steel’s promoters alleged that Tata Steel was disqualified from the bid as its subsidiary faced trial in the United Kingdom. The NCLAT rejected the argument and said the subsidiary is a “connected person” of Tata Steel Ltd. “It does not attract the disability under Section 29A of the IBC. We also hold that ‘Tata Steel Limited’ is eligible to file the resolution plan,” said NCLAT.

Separately, L&T argued that Tata Steel’s offer was not fair to lenders. The NCLAT rejected this argument too and said that Tata’s resolution plan was fair and equitable to all lenders.

The Supreme Court said that if submissions by all appellants is accepted then the resolution plan shall not be workable at all.