National Company Law Tribunal (NCLT) has approved Tata Steel’s bid to acquire the bankrupt Bhushan steel. This is the second biggest dissolution of stressed assets by NCLT under the newly adopted Insolvency and Bankruptcy (IBC) Code. Anil Agrawal led Vedanta Resources was the first successful bidder under this new law when it took over the ownership of bankrupt Electrosteel Steels for an aggregate amount of Rs 1,805 crore (USD 275.7 million) and additional funds of Rs 3,515 crore (USD 536.9 million) by way of debt. Electrosteel operates an integrated steel manufacturing facility near Bokaro, Jharkhand which has a capacity of 1.5 million tonnes per annum.
In the race for Bhushan Steel Limited, Tata Steel has edged JSW Steel and a private equity-backed group of 400 Bhushan Steel employees. In a statement, Tata Steel said: “As per the terms of approved Resolution Plan, Bamnipal Steel Limited (BNPL), a wholly-owned subsidiary of Tata Steel, will initially subscribe to 72.65% equity share capital of BSL at face value of Rs 2 per share, for an aggregate amount of Rs.158.89 crore.” The Law Tribunal, while approving Tata steel’s plan, dismissed a plea by Bhushan Steel Employees Union opposing Tata Steel’s resolution plan for being in violation of Section 29A of IBC and imposed a cost of Rs1 lakh. The tribunal also dismissed a plea by Larsen & Toubro Ltd, one of the operational creditors of Bhushan Steel which was seeking a higher priority for the recovery of loan and ordered it to pay Rs 1 lakh as fine. Tata Steel’s domestic steel capacity, now at 13 million tonnes, is poised to be augmented by 5.6 million tonnes with the Bhushan Steel acquisition.
Bhushan steel and Electrosteel were both among the first twelve companies which were referred by RBI to National Company Law Tribunal for proceedings under Insolvency and Bankruptcy Code, the other being Essar Steel, Alok Industries, Amtek Auto etc. The proceedings for these companies are under process with the Essar Steel acquisition by Luxembourg based ArcelorMittal being in its final stage. ArcelorMittal is run by London based Indian businessman Lakshmi Niwas Mittal. Now proceedings for another 38 companies are at different stages of the insolvency process under IBC law.
Bhushan Steel Limited is the largest manufacturer of auto-grade steel in India; its clients include Tata Motors, Mahindra & Mahindra, and Maruti. The company was started by Delhi based businessman Brij Bhushan Singal in 1987. The company’s operations were harmed by family disputes and recession in the steel industry in the late 2000s. It became one of the largest loss-making units in India by early 2010s, its vice chairman Neeraj Singal was arrested by CBI for bribing Syndicate Bank chairman S K Jain. He was caught bribing Rs.50 lakh to Mr. Jain for increasing credit limit of some companies in violation of banking rules.
The Insolvency and Bankruptcy Code brought by the PM Modi government in 2016 is proving highly effective in solving problems of Non-performing assets. The gross non-performing assets (NPAs) of all the banks in the country amounted to Rs. 840, 958 crores in December, led by industry loans and followed by services and agriculture sectors. Earlier exit from the business was one of the most tedious things to do, thanks to socialist business laws which were the hallmark of previous governments. These laws helped in creating large NPA s, which was the largest problem faced by the Indian government and Reserve Bank of India in the previous decade. India reached a 100th rank in 2018 from 130th in 2017 in Ease of doing business index due to this law. The efforts by the PM Modi government to reform India’s economy is working on the ground with 7.7 percent GDP growth in the last quarter, with most of the agencies predicting above 8 percent GDP growth for India in the upcoming fiscal year.