Govt-owned SAIL-SCL Kerala to face insolvency proceedings

SAIL-SCL Kerala, a 50-50 joint venture between Central government-owned Steel Authority of India Ltd (SAIL) and the government of Kerala, will now face insolvency proceedings after the Kochi bench of the National Company Law Tribunal (NCLT) approved an insolvency petition against the public sector firm filed by Canara Bank.

The insolvency application against SAIL-SCL Kerala was filed after the PSU steel manufacturer defaulted on a payment of Rs 107 crore.

Opposing the insolvency application, SAIL-SCL Kerala submitted that it is a government company under the Ministry of Steel, and that PSUs cannot be dragged in to rigors of IBC 2016. Therefore, the initiation of CIRP cannot be initiated against the Corporate Debtor as it is a Government Company (PSUs).

The corporate debtor also argued that Canara Bank being a financial institution has acted merely as a money lender and sought for recovery of the dues on the false allegations of defaulting in repayment of the alleged dues.

It further argued that the application under Section 7 was barred by limitation. “The account of the Corporate Debtor was declared as non- performing asset (NPA) on 22 August 2016 and the Financial Creditor filed an application under Section 7 of the Code before this bench as on 16 August 2022,” it said in its plea.

In its argument, Canara Bank said that the submission that CIRP cannot be initiated against a Government Company or PSU is wrong and that that Section 3(7) of the IBC defines a “Corporate Person” to include any company as defined in section 2(20) of the Companies Act, 2013.

On the submission of SAIL-SCL Kerala that the application is barred by limitation, Canara Bank argued that the contractual liability was duly acknowledged by the Corporate Debtor by execution of Acknowledgement of Liability document lastly on 12 February 2019.

Approving the insolvency application, the NCLT in its order observed that both the plants of SAIL-SCL Kerala are idle and there is no revenue input to repay the loan availed from the Financial Creditor.

“The proceedings of the recovery of debts against the Corporate Debtor were initiated by the Bank, which is pending before DRT Kochi. 23. For a past few years, the Corporate Debtor was unable to pay the full amount of the loan. We are left with no choice but to hold that the Corporate Debtor is now an insolvent firm and that its bankruptcy needs to be remedied in this situation,” it said in its order.

SAIL-SCL Kerala became a government company in the year 1979. On account of unviable financial performance, the Company was referred to BIFR in 1992. In 2008, Government of Kerala entered into a Joint Venture Agreement with SAIL to jointly develop the company and in pursuance thereof the company became a Joint Venture [JV] of Government of Kerala and SAIL on 28 December 2010. The JV Agreement conceived the establishment of a Rolling Mill for ensuing the viable performance of the company in accordance with the proposal in the modified BIFR Rehabilitation Scheme.

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