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JSW Steel unfazed by Bhushan’s fraud, continues its acquisition

The recent frauds discovered by Punjab National Bank and Allahabad Bank, perpetrated by the promoters of Bhushan Power & Steel (BPSL) are making things difficult for JSW Steel.

The debt infested Bhushan Power, which owes in excess of ₹ 37,248 crore to a consortium of lenders led by Punjab National Bank (PNB) was dragged to bankruptcy court and is in the midst of insolvency proceedings. It also has the dubious distinction of being named as one of the original 12 stressed accounts, or the “dirty dozen” which was first referred to insolvency proceedings by the RBI in 2017, under the then newly minted Insolvency & Bankruptcy Code.

Its resolution process as well, was not without incident, and witnessed its fair share of twists and turns and saw an all out bidding war between JSW Steel, Tata Steel and UK based Liberty House.

After submitting the highest bid of ₹ 18,500 crore, Liberty House bowed out of the race early, as it did not comply with conditions set forward by the Resolution Professional, and hence was disqualified. Also, while JSW Steel had initially offered ₹ 11,000 crore, it revised its bid twice to ₹ 18,000 crore and then ₹ 19,000 crore. Tata Steel did not change its bid after making a final offer of ₹ 17,000 crore. However, Tata Steel was not happy with the fact that JSW was allowed to change its bid more than once, and took its objections to the appellate tribunal (NCLAT), which ruled in favour of accepting revised bids, to Tata Steel’s disappointment.

  

Finally, after the smoke cleared, JSW Steel emerged victorious with their winning bid of ₹ 19,000 crore, which implied that the lenders to BPSL would have to accept a haircut of nearly 50% against their dues of ₹ 37,248 crores.

After fighting tooth and nail to gain control of the beleaguered BPSL, one can only imagine the anxiety JSW felt when they heard about two separate incidents of fraud perpetrated by BPSL within a span of ten days, especially considering that the case is still delicately poised with the NCLT in bankruptcy court.

JSW Steel on Monday made a comment that it was anxious about the reports of fraud at BPSL, although it was not backing out from the ongoing resolution process for now, and further said that it wanted to know what was going on at BPSL

JSW has also approached the NCLT with a plea that the forensic audit reports of banks, which had detected the frauds, should be shared with it.

On July 7th PNB disclosed to the RBI that it had detected a fraud worth ₹ 3,805 crore by the former promoters of BPSL. PNB’s report stated that it was carried out by misappropriating bank funds by manipulating its books of accounts to raise funds from a consortium of lenders. With a total borrowing of around ₹ 4,400 crore from PNB, Bhushan has siphoned off more than 85% of the total amount.

Then, on July 13th, state owned lender Allahabad Bank said it had detected a fraud worth ₹ 1,774 crore by the same party and following the same modus operandi of misappropriating bank funds and manipulating books of accounts.

However, to the relief of JSW Steel, a two member bench of the NCLT asked the resolution professional of BPSL to hand over a copy of the forensic report to JSW Steel, and further said that the reports of fraud would not have any impact on the outcome of the insolvency resolution process.

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