Through a Larsen & Toubro (L&T) application, operational creditors to Bhushan Steel have got a window of hope at the National Company Law Appellate Tribunal (NCLAT) on their dues to the insolvent company.
The appellate body has agreed to hear the L&T petition on its Rs 9.62 billion of dues from Bhushan Steel. The case will be heard on Tuesday. Bhushan Steel was taken over by Tata Steel last week, after a protracted process under the insolvency law, involving some controversy.
The Insolvency and Bankruptcy Code (IBC) makes a distrinction between financial creditors and operational creditors. Financial creditors’ relationship with the entity in question is of a purely financial contract, such as a loan or debt security. Operational creditors are those whose liabilities from the entity come from a transaction on operations.
L&T argued on Monday before the NCLAT that it was an “oppressed” entity. While the committee of creditors got 70 per cent of their dues from Tata Steel in exchange of for taking over Delhi-headquartered Bhushan, the operational creditors got none.
L&T had earlier contended it should not be treated as an operational creditor. However, in the event it was held to be one, then the Rs 12 billion provided for by the resolution professional in his plan should be first applied to the dues and claims of L&T. “Out of a total of Rs 12 billion, Rs 10 bn have been kept aside for operational creditors who are critical for the functioning of the debtors,” said the company in its petition.
Sources believe this is likely to get qa favourable response at the tribunal.
In a May 15 order, the National Company Law Tribuunal (NCLT) had dismissed the petitions of L&T and of former employees at Bhushan Steel, also imposing a Rs 100,000 cost on each. “The claim made on behalf of L&T, on the face of it, appears wholly unsustainable. There is no document on record showing any creation of charge or security warranting a view that L&T should be regarded as a secured creditor and not as the operational creditor,” it had held.
Further in its appeal on Monday, L&T said the IBC did not seek to dilute the rights of any party which had already accrued prior to enactment of the Code. “Therefore, the right of appellants as an unpaid seller under the Transfer of Property Act and the consequential charge cannot be nullified merely because there is no specific document to that effect in favour of the appellant,” it argued.
L&T alleges Bhushan Steel defaulted on payment of Rs 9.62 billion for construction of the latter’s factory at Angul in Odisha. Under the IBC procedure, it had claimed the amount by filing a prescribed form with the Resolution Professional in question, Vijay Kumar Iyer of Deloitte Touche Tohmatsu, in August 2017.
Bhushan Steel has its main plant in Odisha, of 5.6 million tonnes capacity yearly, catering to domestic and export automobile market. As on March 31, 2017, the company owed Rs 481 billion.
L&T’s petition to the NCLT had contended that the plant and machinery supplied by it to Bhushan Steel was “a property attached to the earth” under Section 3 of the Transfer of Property Act. And, hence, under the ambit of immovable property. Since “works evaluated at Rs 9.62 bn remained outstanding from the respondent (Bhushan) due to its non-performance of the contract and the machines stand embedded into the earth, the applicant (L&T) has a charge to the extent of the unpaid amount”. A secured creditor under the IBC, argued L&T.
Source: Business standards, May 21,2018