Clipped from: https://www.thehindubusinessline.com/opinion/bhushan-steel-ruling-can-help-strengthen-ibc/article69550247.ece
It restores discipline to the insolvency process, sets clear limits on tribunal powers, protects the independence of enforcement agencies
The Supreme Court ruling raises the bar for insolvency professionals and creditor committees, clarifying that they must thoroughly verify bidder eligibility and ensure full transparency | Photo Credit: STRINGER/INDIA
The Supreme Court’s recent ruling in the Bhushan Power and Steel Ltd (BPSL) case marks a turning point in India’s evolving insolvency law. Delivered on May 2, the judgment exposes critical flaws in resolving large corporate bankruptcies while drawing clear lines between commercial recovery and criminal enforcement.
By dissecting the conduct of resolution professionals, the powers of insolvency tribunals, and the obligations of bidders like JSW Steel, the Court has clarified the legal architecture of the Insolvency and Bankruptcy Code (IBC) and reinforced the principles of due process, transparency, and institutional boundaries.
Here’s how the BPSL insolvency saga unfolded and ultimately landed before the country’s highest Court.
In July 2017, BPSL, a major Indian steel company, went bankrupt under India’s new Insolvency and Bankruptcy Code. The company had failed to repay loans worth over ₹47,000 crore to banks and financial institutions. It was part of the RBI’s so-called “dirty dozen” — a group of large defaulters targeted for fast-track insolvency.
What followed was a five-year-long legal drama involving powerful investors, enforcement agencies, and constitutional questions about the separation of powers.
JSW Steel won the bid to acquire Bhushan Power and Steel Ltd. (BPSL) in 2019, after its ₹19,700 crore resolution plan was approved by the Committee of Creditors (CoC). The National Company Law Tribunal (NCLT) approved the plan with certain conditions in September 2019. However, in the following month, October 2019, the Enforcement Directorate (ED) attached BPSL’s assets, claiming they were “proceeds of crime” linked to the company’s past wrongdoing. These included fictitious transactions, diversion of funds to related parties and shell companies, over-invoicing of capital goods, etc.
JSW Steel appealed to the NCLAT against the NCLT’s September 2019 order, raising concerns about several conditions. It objected to the continued risk of criminal cases, ED’s asset attachments, unclear ownership rights, and being held liable for BPSL’s past misdeeds. JSW argued that such issues should not arise once a new management takes over — especially after Section 32A was added to the IBC in December 2019, granting protection to buyers from prosecution for the company’s past actions.
In February 2020, the NCLAT not only accepted JSW’s appeal, but also declared the ED’s asset attachment illegal. NCLT even issued directions related to promoter declassification and corporate restructuring that were beyond the scope of insolvency law. This triggered a flurry of appeals to the Supreme Court by various stakeholders including operational creditor Kalyani Transco, the ED, and the State of Odisha.
The core legal questions before the Court were: Can a successful bidder like JSW challenge a resolution plan it had already accepted? Can NCLAT override ED’s powers under PMLA? What is the role of disclosure and due diligence in determining bidder eligibility? And finally, do operational creditors and regulators have the right to challenge resolution plans?
On May 2, the Supreme Court partially set aside the NCLAT decision. It ruled that JSW’s appeal was not maintainable under Section 61(3) of the IBC because it was not an “aggrieved party”, and JSW had already accepted the plan. The Court emphasised that a bidder who wins the bid cannot later cherry-pick conditions it finds unfavourable. The Supreme Court raised serious concerns that JSW did not disclose its 2008 joint venture with BPSL, a key fact that could have made it ineligible under Section 29A of the Insolvency and Bankruptcy Code.
Non-disclosure overlooked
The NCLAT overlooked the non-disclosure, which the Court saw as undermining the integrity of the resolution process.
More importantly, the Court clarified that neither NCLT nor NCLAT had the authority to review or invalidate asset attachments made under PMLA. Only PMLA-designated forums and courts can handle such enforcement actions. The NCLAT’s sweeping ruling against the ED was thus beyond its legal powers and was struck down.
The Court also identified significant lapses in the conduct of the Resolution Professional (RP) and the CoC. The RP failed to submit Form H — a mandatory certificate verifying the eligibility of the resolution applicant under Section 29A of the IBC.
It also failed to properly examine JSW’s affidavit, which omitted mention of a 2008 joint venture with BPSL. This non-disclosure could have rendered JSW ineligible under IBC rules, and its acceptance raised serious concerns about due diligence. The CoC, responsible for scrutinising eligibility and disclosures, was also found wanting.
Despite discussions in its 14th meeting about the unresolved eligibility issue, no concrete action was taken.
The Supreme Court further addressed its December 2024 interim order, which allowed JSW to take over BPSL’s provisionally attached assets. It clarified that this was a case-specific, consensual relief that did not set a precedent or weaken the ED’s investigative powers. The distinction reinforced that commercial resolution and criminal investigation are distinct legal pathways.
The impact of the Supreme Court’s judgment is far-reaching. It raises the bar for insolvency professionals and creditor committees, clarifying that they must thoroughly verify bidder eligibility and ensure full transparency. Any gaps in due diligence or failure to disclose key facts could invalidate the entire resolution process.
For enforcement agencies like the ED, the ruling confirms their independence. It makes clear that insolvency tribunals like the NCLT and NCLAT cannot act as substitutes for enforcement bodies or interfere in criminal investigations.
The Court also gave much-needed recognition to operational creditors, often ignored in big bankruptcy cases. It confirmed their right to challenge resolution plans, strengthening the fairness of the process.
The message is unambiguous for JSW and other bidders: honesty is mandatory. Once a resolution plan is approved, you can’t go back and try to change the terms through appeals.
In short, this judgment is about more than just one company. It restores discipline to India’s insolvency process, sets clear limits on tribunal powers, protects the independence of enforcement agencies, and warns all players against taking legal shortcuts.
About 12,000 cases are pending before NCLT. As more complex bankruptcy cases arise, this ruling lays a stronger, fairer foundation for resolving them.
The writer is the founder of GTRI
Published on May 7, 2025
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