L&T may get relief from NCLAT over Bhushan Steel dues

Petition to be heard today; Bhushan employees and L&T face ~100,000 cost after NCLT order

The National Company Law Appellate Tribunal (NCLAT) has accepted a petition by Larsen & Toubro (L&T) for ~9.61 billion dues from Bhushan Steel. The case will come up for hearing on Tuesday. Bhushan Steel was taken over by Tata Steel last week after a protracted insolvency process.

L&T on Monday argued in the NCLAT that it was an “oppressed” entity. While the committee of creditors received 70 per cent of their dues from Tata Steel as part of its resolution plan for the New Delhi-headquartered Bhushan Steel, the operational creditors were left without any relief.

L&T had contended that it should not be treated as an operational creditor. However, L&T had argued that in the event it was held to be an operational creditor, the ~12 billion provided for by the resolution applicant in his plan should be first applied to its claims.

“Out of a total of ~12 billion, ~10 billion has been kept aside for operational creditors, which are critical for the functioning of the debtor,” said the company in its petition. Persons close to the development said this proposal was likely to be approved by the appellate tribunal.

Earlier, dismissing the petition of L&T and the former employees of Bhushan Steel, NCLT in its May 15 order imposed ~100,000 cost on each of them.

“The claim made on behalf of L&T on the face of it appears to be unsustainable. There is no document placed 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 an operational one. The charge is created by execution of a document under Section 132 of the Companies Act,” held the tribunal.

While the NCLAT directed the former management to cooperate in implementation of the resolution plan, it granted “liberty” to the monitoring authority to apply further direction against the former management, its directors and other officers, if necessity arises. Further in its petition on Monday in the NCLAT, L&T said the Insolvency and Bankruptcy Code (IBC) did not seek to dilute the rights of any party already accrued prior to the 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,” the company said.

L&T alleged that Bhushan Steel, which was undergoing corporate resolution, had defaulted on payment of ~9.61 billion for construction of its Angul factory in Odisha. In the procedure set out by the IBC, L&T had claimed the amount by filing a prescribed form with resolution professional Vijay Kumar Iyer of Deloitte Touche Tohmatsu in August 2017.

As on March 31, 2017, Bhushan Steel had a debt of ~481 billion. Bhushan Steel, which has its main plant in Odisha, operates a 5.6 million tonne steel plant and is in a high-margin flat product business that can cater to the domestic as well as export automobile market.

In its petition before the NCLT, L&T had earlier said the plant and machinery supplied by it to Bhushan Steel was “property attached to the earth” under Section 3 of the Transfer of Property Act, and, hence, it would come under the ambit of immovable property.

Since “works evaluated at ~9.61 billion remained outstanding from the respondent (Bhushan Steel) due to its non-performance of the contract and the machines stand embedded in the earth, the applicant (L&T) has a charge to the extent of the unpaid amount”, L&T argued.