CASE STUDY ON BHUSHAN STEEL RESOLUTION PLAN

Submitted By-

RITHIK ANAND KAMATH

17010324045

BBA LLB

Section- C

Symbiosis Law School, Hyderabad

Symbiosis International University, PUNE

In

OCTOBER 2021

Under the Guidance of

Prof. Katuri Nageswara Rao

 Professor 

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 CONTENTS

INTRODUCTION....................................................................................................................2

LITERATURE REVIEW........................................................................................................4

RESEARCH METHODOLOGY...........................................................................................5

CIRP PROCESS OF BHUSHAN STEEL LIMITED AND VARIOUS CIRP COSTS.....6

HOW DID THE BMSL PAY ITS FINANCIAL CREDITORS AND WHAT MEANS

OF FINANCIAL INSTRUMENTS WERE USED AS MENTIONED IN THE

RESOLUTION PLAN FOR THE SAME..............................................................................8

THE APPLICABILITY OF SECTION 32 (A) IN BHUSHAN STEEL LIMITED CASE

..................................................................................................................................................10

THE IMPLICATIONS OF THIS RESOLUTION PLAN ON VARIOUS

STAKEHOLDERS.................................................................................................................11

IMPACT OF THE RESOLUTION PLAN ON TAX..........................................................12

CONCLUSION.......................................................................................................................13

REFERENCES.......................................................................................................................14

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INTRODUCTION

Bhushan Steel Ltd is a company listed under the companies act in 1983 under the designation
of Jawahar Metal Industries Pvt Ltd. Brij Bhushan and his sons took over the entire
company’s management and stake in the year 1987. They them announced the company to be
public. The company was then renamed to Bhushan Steel and Strips Ltd. In 1992, the
company completed the Cold Rolling Plant and in the following year, they issued their first
Public Issue to finance their project for manufacture and supply of steel strips1.

Under the new management, Bhushan steel flourished making huge profits and expanding
and diversifying their products to Iron Ore and Coal. But unfortunately, the glorious days of
the company ended in July 2017. The lawyers from State bank had filed for bankruptcy as the
company failed to repay debts worth Rs. 42,062 crores {Forty-Two thousand and sixty-two
crore rupees only} which was on the same level as the education budget of India at that time.
The company further was investigated by Serious Fraud Investigation Office (SFIO) to see an
understand how and when can the company repay the bank. Bhushan steel has from then
become a part of the “NPA” crisis with an outstanding loan amount of over eight lakh crores2.

Deloitte then appointed an Insolvency and Bankruptcy agency to oversee the management of
Bhushan Steel Ltd for a period of one year. In July 2017, TATA motors acquired complete
control and stake of 72.65% in Bhushan Steel in accordance with the resolution plan as
discussed in the Corporate Insolvency and Resolution Process. TATA even stated that the
settlement of outstanding loans amounting to Rs. 35,200 crores {thirty-five thousand two
hundred crore rupees only} are in the process of settlement by the use of various Financial
Instruments as mentioned in the resolution plan3.

Bhushan Steel now acquired by TATA, has been renamed to TATA Steel BMSL Ltd. As part
of the resolution plan, new shares were issued to the BMSL as preferential allotment and the
share holding group had a stake of 43.90% as mentioned in the resolution plan.

1
Insolvency and Bankruptcy Code, 2016
2
Jayanth Balakrishna, 'NJA – Session 4' (Enforcement of Foreign Arbitral Awards: Issues and
Challenges, 15th December)
3
https://www.business-standard.com/article/companies/ibc-to-face-another-litmus-test-in-
the-bhushan-power-steel-case-120070700450_1.html

3
With the CIRP process initiated valuable assets to be saved and various employees and
stakeholders could continue to operate and manage the company.

LITERATURE REVIEW

The Literature Review is the basic examination of the data/information/records/insights with

respect to the exploration study. In regard to the current study, the literature review will
demonstrate how the reasonable and lawful research has been given to explore the concepts
dealt in this study. It shows that exploration study is a wide and basic review of the
examination point. In this study the title/concept is taken from referring various articles,
journals and online books. In this paper various materials have been considered for a detailed
study. This study includes information which is combined and explained from many other
books written by great authors and also research articles which helped in completing the
research study. The following are the Journals, articles and online books referred by the
author to complete this study-

1. INSOLVENCY AND BANKRUPTCY CODE, 2016

This book has helped the author understand and know about IBC and the resolution process.
Further this book helped the author understand about the CIRP process and always study
about Section 32(a) which provides corporate immunity to the corporate debtor. This book
has helped the author frame and answer the research question further mentioned in the study.
2. SUPARNA JAIN, BIBEK DEBROY, 'NITI GOVERNMENT'
(STRENGTHENING CIRP AND ITS ENFORCEMENT IN INDIA –
RESOLVE IN INDIA, 31ST DECEMBER)

This article has helped the author understand and study in detail about the CIRP process and
the various costs involved in the process. Further tis article stated the initiation and the
proceeding of the CIRP process and the Resolution plan initiated.

3. JOURNAL OF THE INDIAN LAW INSTITUTE, VOL. 21, NO. 1, 1979, PP. 31–
44. JSTOR,

This article from Jstor helped the author understand the various financial instruments that
exist and that can be used to pay the financial creditors. Further it provided ample

4
information about the short-term financial instruments which were particularly used in this
case, the information acquired has been used by the author further ahead in this study.

4. JOURNAL OF THE INDIAN LAW INSTITUTE, VOL. 50, NO. 1, 2008, PP. 51–
66. JSTOR

This article has helped the author understand about the impact of a resolution plan of various
stakeholders including the existing promoters of the company. This article has helped the
author formulate and answer the research in question with ample and important information
used further in this study.

5. NATIONAL LAW SCHOOL OF INDIA REVIEW, VOL. 24, NO. 2, 2013, PP.
JSTOR

This article talks about the various milestones in IBC and how this case has actually proven
to be a prefect milestone example. This article provided the author with an overview of how
the case proceeded and the details on the ongoing case in the Supreme Court, both have been
mentioned by the author further in the study.

RESEARCH METHODOLOGY

This study has been conducted by primarily adhering to the Doctrinal Research
Methodology to investigate, find and understand the Case study on Bhushan Steel and their
resolution plan.

The First part of this methodology includes the research required to frame the questions for
this study and the Second part of this Research includes research done for substantiating and
addressing the questions framed for this paper. It has further helped in analysing the
challenges against the implementation of this law.

The Doctrinal research adopted has aspects of both quantitative and qualitative
methodologies used in this study. To understand the judicial interpretation and intervention in
India, Analytical Research Methodology has also been used. The research further aims
observing the global challenges faced for its enactment. Various articles, journals, cases and
books have been referred by the author for research of study for this paper.

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The information on the topic is comprehensively reduced into writing in the final paper to be
presented and then fundamental issues are analysed. The answers deducted to the research
questions are presented by means of inductive reasoning & analogy with appropriate
justifications. This research is substantiated with all necessary sources and citations including
list of references used. The author has adhered to the guidelines of the Bluebook (20th ed.)
for the sources and citations provided in this paper. The above-mentioned research methods
have been adopted in this study.

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CIRP PROCESS OF BHUSHAN STEEL LIMITED AND
VARIOUS CIRP COSTS

Bhushan Steel filed under Section 30 and 31 of the Insolvency and Bankruptcy code with the
prime prayer of the petition being the acceptance of the resolution plan approved Committee
of Creditors. The resolution plan was put forward and verified by Tata Steel Ltd. On 26 th of
July 2017, the CIRP process was initiated with regards to Section 14 that was needed to be
followed. The resolution professional in this matter was allotted claims worth Rs. 56,080
crores (Fifty-six thousand and eighty crore rupees only) from 53 different financial creditor
and further receivable claims form operation creditors summed up to Rs. 2,846 crores (Two
thousand eight hundred and forty-six crore rupees only). There was further an outstanding
claim of Rs. 0.22 crores (Twenty-two lakh rupees only) from other miscellaneous creditors.
All the CIRP costs were to paid in full to the creditors by 20th of March 20184.

In accordance to all the costs that had to be paid, the RP published an advertisement on 9 th of
October 2017 inviting applicants of resolution plan in respect of the corporate debtor. A total
number of nineteen resolution applicants were received by the RP and all of them signed the
confidentiality undertakings after which the RP provided them all the details and documents
of the ongoing CIRP process and the CIRP costs to be paid 5. Further with respect to
Regulation 35 of the CIRP regulations, the RP appointed two registered valuers to calculate
the liquidation value of Bhushan Steel. A CoC meeting was set up where the evaluation
process was approved to evaluate the provided resolution plans to the liquidation value of
Bhushan Steel and the CIRP costs to be covered.

On 27th of November 2017, KMPG Pvt. Ltd, was appointed as the evaluator of the resolution
plans and Shardul Amar Chand Mangaldas and Co. was appointed as the legal counsel. On
15th of December 2017, the Coc requested to seek an extension beyond the period of 180 days
to allow potential applicants to submit their resolution plans6.

On 24th of February 2018, the CoC approved the resolution plan provided by Tata Pvt. Ltd.
with a voting percentage of 99.80% which is much more than the affirmative 75%
requirement. The RP further stated on the day of the approval of the resolution plan by the
tribunal, it shall be deemed effective7.
4
Insolvency and Bankruptcy Code, 2016
5
Jayanth Balakrishna, 'NJA – Session 4'
6
Jtor article BSML pp 84, Vol 2
7
BSML archive, govt.telganana

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Further the RP appointed Deloitte Touché Tohmatsu India LLP as the forensic and financial
analyst for recognizing and red flagging suspicious transactions, fraudulent transactions,
unregistered transactions and any illegal transactions made by or involving the corporate
debtor which can further help in valuation and extended credit.

In reply to the resolution plan, Bhushan Steel Ltd. stated that the plan adversely affects the
rights and finances of BEL which is a subsidiary company of the debtor. The aforesaid
objection is in reference to the resolution plan seeking to terminate the agreements of BEL as
unlawful. Bhushan Steel argued that the agreements and projects deemed unlawful were set
up and initiated within the jurisdictional and geographical limits of the corporate debtor8.

Tata Steel Ltd. brought about the dilemma of locus Tandy of BEL in this matter. The TSL
believes that the power purchases made under BEL are undervalued and thus ineffective and
dissatisfactory to the numerous financial creditors seeking their claims through the proposed
resolution plan. The resolution plan by Tata Steel Ltd. was approved and the takeover of
Bhushan Steel was successful with the compliance of all the financial creditors and the other
required authorities.

The major financial creditors of BSL:

Creditors Amount (in crores) (in rupees)

State Bank of India 9,825
Punjab National Bank 7,355
Asset Care & Reconstruction Enterprise 5,275
Canara Bank 4,018
Union Bank 3,497

HOW DID THE BMSL PAY ITS FINANCIAL CREDITORS

AND WHAT MEANS OF FINANCIAL INSTRUMENTS WERE
USED AS MENTIONED IN THE RESOLUTION PLAN FOR
THE SAME

In the year 2018, Tata Steel raised over Rs. 5000 crores (Five thousand crore rupees only) by
the means of commercial paper as the financial instruments in order to repay the financial
8
Section 115 of IBC

8
creditors. CPs are short term debt instruments and, in this case, City Bank and other top
mutual funds like ICICI and Birla SunLife subscribed to the CPs at 8.5% with a three-month
maturity rate.

On 15th May Tata’s bid for Bhushan Steel was approved with an initiate subscription of
72.65% of equity share capital of Bhushan steel Ltd. at the face value of Rs. 2 per share for a
total amount of Rs. 158 crores (One hundred and fifty-eight crore rupees only). BSL’s
financial creditors are to be settled of with a total compensation of Rs. 35,200 crores (Thirty-
five thousand two hundred crore rupees only) through a combination of equity and inter-
corporation loans. From the total amount, Rs. 9000 crore (Nine thousand crore rupees only)
can be converted into BSL equity shares. Tata Steel is also extending the compensation up to
Rs. 17,000 crores (Seventeen thousand crore rupees only) in the form of loans from a
consortium consisting of private and foreign investors9.

JSW Steel is also a part of the resolution plan and the takeover of Bhushan Steel and have
approved a Rs. 19,350 crores (Nineteen thousand three hundred and fifty crore rupees only)
transaction with Tata Steel to acquired Bhushan Power and Steel. This had taken place with
respect to the long CIRP process that stretched over three and a half years. The huge
transaction was made by JSW Steel group through a process of equity and debt loan. As a
matter of fact, a sum of Rs. 8,000 crores (Eight thousand crore rupees only) were acquired
through a combination of equity, debt and other convertible financial instruments. The
remaining Rs 11, 350 crores (Eleven Thousand Three hundred and fifty crore rupees only)
were acquired through debt10.

This transaction by JSW Ltd. would compensate for 49.65% of the claims of all the
operational creditors amounting to Rs. 733 crores (Seven hundred and thirty-three crore
rupees only). The transaction thus made consisted of various financial instrument mainly
involving equity and debts. There was even a merger of subsidiary companies of JSW limited
for the same purpose. Finally with this transaction is place, it can be assumed that most of the
financial and operational creditors of Bhushan Steel limited will be paid of it full after a 3
year long wait. But even after this transaction, there remains a sum of amount that is to be
paid to the remaining financial creditors in order to dissolve the CIRP process11. The financial
instruments used so far have been short term financial instruments as they had to arrange for

9
Journal of the Indian Law Institute, vol. 21, no. 1, 1979, pp. 31–44. JSTOR
10
Journal of the Indian Law Institute, vol. 21, no. 1, 1979, pp. 31–44. JSTOR
11
IBC, 2016

9
large sums of cash to pay off priority creditors. The instruments to be used in the future to
pay the remaining amount are also likely to be short term instruments as the point and
purpose of a resolution process is to pay the financial creditors first and resume operations to
make profits in the future. So even in this case, TSL and JSW Limited are most likely to use
other short terms instruments like Commercial Paper, Equity, Debt and short-term loans to
pay off the remaining debt.

THE APPLICABILITY OF SECTION 32 (A) IN BHUSHAN

STEEL LIMITED CASE

In the year 2020, the government amended the Insolvency and Bankruptcy Code to add in a
new section, Section 32 which basically provides immunity to a Corporate Debtor from the
financial frauds made or involved in before. Hence, in some circumstances, this immunity
can be granted to the Corporate Debtors under the right jurisdiction. There have been many

10
speculations of this Section on whether it would provide immunity to the corporate debtor in
all and every offense made before the Corporate Insolvency Process12.

In this case the Bhushan Steel Ltd.’s assets were valued at Rs. 4,025 crore (Four thousand
twenty-five crore rupees only) for which the ED issued a provisional order. The ED further
raised contentions against the applicability of Section 32 (a) to the Bhushan-JSW deal. The
main reason being that the resolution plan of JSW Steel for Bhushan Steel Ltd. was approved
in October 2019 which was before the inception and enactment of Section 32 sub clauses.
The ED further stated that the recent amendment exempts the new management from any
previous financial liability for the offenses made by or being involved in by the corporate
debtor. Further the ED argued that the NCLT has no power or jurisdiction to invoke this
Section in favour of the corporate debtor13.

With all the effort from ED, the NCLT still upheld the contentions of JSW Steel and granted
complete immunity from the offenses committed by Bhushan Steel Ltd. Th resolution plan
being approved exempts JSW steel from all the legal liabilities of Bhushan Steel limited. But
this matter is still under question and debate as the ED does not agree and comply with
retrospective use and applicability of Section 32(a) In this case and has further moved ahead
to the Supreme Court of India with the same.

Applicability of Section 32(a) is surely a dilemma for many in this case as there was a report
of money laundering from the side of Bhushan Steel Limited and the applicability of this
section will decide whether this liability will also extend to JSW Steel limited. Th case is now
pending before the Supreme Court awaiting a trial and judgement of the applicability and if
and whether the Apex Court will uphold the judgement of NCLT which was in favour of
JSW steel limited.

THE IMPLICATIONS OF THIS RESOLUTION PLAN ON

VARIOUS STAKEHOLDERS

A resolution plan when initiated often has a lot of implications on its various stakeholders.
The impact on the stakeholders is determined by the resolution plan in effect and it can prove
to be beneficial or adversary to the stakeholders. In the Bhushan Steel Ltd case, there are two
types of stakeholders,

12
Section 32(a), IBC, 2020
13
Section 29 and Section 32, IBC, 2020

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  Impact on Financial Creditors:

Financial Creditors Amount (in Rs. Crores) % of loan

Payment Received 35,100 57.94%
Allotment of Shares 14.50 0.02%
Invocation of pledge shares 181.58 0.30%
Balance due to FC novated to 25,285.51 41.74%
BMSL
Total Financial creditor 60,581.58 100.00%
Liabilities

 On Operational Creditors:

Operational Creditors Amount (in Rs. Crores) % of loan

Payment to Operational Creditors 1,200 68.47%
OC Extinguishment of liability 552.12 31.51%
Total 1,752.12 100.00%

 Impact on Shareholder: The existing promoters of the company had their share capital
secured as it always happens in a Resolution process. The shares of the promotors will
now be categorized into public category.

From the above tabular calculations, we can observe that the Financial Creditor Liability and
the Liability owed to the Operational Creditor sums up to approximately Rs. 62,000 crores
(Sixty-two thousand crore rupees only) whereas, the share capital of the existing shareholders
or promotors is still safe and secure. It is the liability of the resolution plan in place to make
sure that the Financial Creditors and well as the Operational Creditors are paid in full for
which the ongoing resolution plan has allotted percentage of loans taken by the corporate
debtor to pay the various creditors. Other financial instruments used to pay the creditors are
allotment of share and invocation of pledge shares14.

IMPACT OF THE RESOLUTION PLAN ON TAX

With the execution of the resolution plan, there will be suppression or writing-off of financial
liabilities which result in immense gain in the financial books. In this case, there was no
noticeable tax implication on the transactions mentioned in the balance sheet of the resolution
plan. The company as of March 2019, has around Rs. 9,200 crores (Nine thousand two

14
Tax Implication by J Kumar, Jstor Vol 3

12
hundred crore rupees only) which is unutilized and depreciated beyond value. There is no
sign of deferred or indirect tax created in the financial books of the company.

Further as the CIRP process has been initiated by the financial creditors, the total loss
incurred by the company shall be carried on to be deducted from the profit column in the
financial books for the easement to levy MAT under Section 115 of the Insolvency and
Bankruptcy code15.

Particular Rs. in Lacs

Innovation of Pledge by FC 18,158
Liability extinguishment by OC 55,212
Pref Share redemption 2,42,557
Total Exception gain booked 3,15,927

CONCLUSION

As seen from the above study, we can understand that Bhushan Steel Ltd. was on the verge of
collapse and had filed for liquidation of its assets. TSL and JSW Ltd. had proposed their
respective resolution plans which were approved and initiated. Thus, CIRP process was
initiated for evaluating the company assets to help pay the various stakeholder and employees
of the company. This process also involves profitable and beneficial use of the company
assets for generating maximum revenue for the various creditors. The takeover by Tata Steel
Ltd. has provided for huge opportunities in the field of Steel production with eye opening
returns.

15
Arun Sharma, 'I Pleaders'

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This case and the resolution plan adopted as initiated can be considered a sone of the success
stories of Insolvency and Bankruptcy code which upheld the main objective for introducing
this code, i.e., to help and ensure that all the stakeholder are paid in full and the company
does not dissolve. In this case all the aspirations of the stakeholders have been achieved and
the objectives of the resolution plan fulfilled. This is a classic case of a resolution process that
was analysed and framed perfectly keeping in mind the financial liabilities owed by the
company to its various stakeholders and creditors. From the above case we can observe that
proper resolution plan, proper CIRP process and use of various available financial
instruments can lead to flourishment of the company and its stakeholders in the near future
without any previous financial liabilities. This also satisfies and helps the various creditors to
acquire the money they have invested and deserve.

REFERENCES

A. PRIMARY SOURCES

● STATUES

1. Insolvency and Bankruptcy Code, 2016

2. Section 32(a)

B. SECONDARY SOURCES

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● ARTICLES

1. Suparna Jain, Bibek debroy, 'Niti Government' (Strengthening CIRP and its

Enforcement in India – Resolve in India, 31st December)

<http://niti.gov.in/writereaddata/files/document_publication/Arbitration.pdf>

2. Journal of the Indian Law Institute, vol. 21, no. 1, 1979, pp. 31–44. JSTOR,

www.jstor.org/stable/43950619.

3. National Law School of India Review, vol. 24, no. 2, 2013, pp. 1–9. JSTOR,

www.jstor.org/stable/44283758.

4. Journal of the Indian Law Institute, vol. 50, no. 1, 2008, pp. 51–66. JSTOR,

C. WEBLIOGRAPHY

1. US legal, 'USLEGAL' (Arbitral Award Law and Legal Definition, 8 June)

<https://definitions.uslegal.com/a/arbitral-award/> accessed 15 March 2021.
2. Arun Sharma, 'I Pleaders' (Challenges of Executing Foreign Arbitration Awards in
India, 11 August) <https://blog.ipleaders.in/arbitration-award/> accessed 14 March
2021.
3. Jayanth Balakrishna, 'NJA – Session 4' (Enforcement of Foreign Arbitral Awards:
Issues and Challenges, 15th December)
<http://www.nja.nic.in/Concluded_Programmes/2018-19/P-
1145_PPTs/3.Enforcement%20of%20Foreign%20Arbitral%20Awards%20Issues
%20and%20Challenges.pdf> accessed 15 March 2021.
4. https://mnacritique.mergersindia.com/bhushan-steel-tata-steel-insolvency-resolution/
5. https://m.economictimes.com/news/politics-and-nation/bhushan-steel-case-hc-to-hear-
next-week-eds-plea-to-modify-order-directing-no-coercive-
steps/articleshow/73249464.cms
6. https://mnacritique.mergersindia.com/bhushan-steel-tata-steel-insolvency-resolution/
7. https://bloncampus.thehindubusinessline.com/b-learn/insight/a-look-at-two-
successful-ibc-cases-in-the-steel-industry/article26281699.ece
8. https://www.iasparliament.com/blogs/pdf/insolvency-proceedings-against-bhushan-
steel

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9. https://www.business-standard.com/article/companies/ibc-to-face-another-litmus-test-
in-the-bhushan-power-steel-case-120070700450_1.html

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